Inside The Deal To Sell GM to China’s SAIC

Image: Shanghai-GM-logo

By now, you’ve no doubt heard the news: General Motors’ Chinese partner, Shanghai Automotive Industry Corporation (SAIC) will take a controlling stake in GM by purchasing the equity sold to the U.S. and Canadian governments during the bailout. But what does it mean for the future of GM?

The announcement was brief, cryptic and buried in the excitement over the multitude of concepts and new vehicles GM has just announced it will debut at the Shanghai auto show in a few weeks. The press release reads simply:

“Shanghai Automotive Industry Corporation (SAIC) and General Motors (NYSE: GM) are announcing today that an agreement has been reached with the governments of the United States and Canada that will allow SAIC to purchase the shares of GM owned by the respective governments. The sale is expected to be completed by this time next year pending approval from U.S., Canadian and Chinese government regulators.”

The implications of this announcement are enormous. The U.S. Treasury currently holds a 26-percent stake in General Motors after selling roughly half of its interest during the company’s Initial Public Offering in November 2010. The Canadian Government, meanwhile, holds nine percent of GM stock after selling of 17.4-percent of its stake during the IPO. Together, that’s 35-percent of the company.

Should the respective governments sign off on this deal, SAIC will take a 36-percent stake in GM (SAIC already bought a one-percent stake in GM during the company’s IPO), a controlling interest. In effect, GM will be owned and under the control of SAIC, which will make combined company far and away the world’s largest automaker by volume. It goes deeper than that, though. SAIC is owned and controlled by the Chinese Government. If this deal goes through, GM will essentially be sold to the government of China. How could our government let this happen? As is so often the case, it’s all about the money.

The “bailouts” of Chrysler and GM have been fairly unpopular with the American public. Many have accused the government of overstepping its authority and wasting taxpayer money propping up two companies who failed in their own right, and this negative perception has dogged the Obama Administration for years now. The Treasury gained some good PR last year when it sold roughly half its stake in GM, but for many opponents, it wasn’t enough. With the 2012 election looming, the Obama Administration is likely looking for a quick way out of this situation, and it appears the Chinese made them an offer they couldn’t refuse.

With GM’s share price closing at $33.01 on Thursday, SAIC would have to pay a minimum of $17.3 billion to buy all of the U.S. and Canadian Governments’ shares of GM, though the actual sale price will likely be higher so the governments can turn a profit on the sale. But unless SAIC offers the estimated $56 per share necessary for the U.S. and Canadian Governments to break even on their investment in GM, the taxpayers are going to take a bath on this deal.

Inside The Deal To Sell GM to China’s SAIC imageDetails regarding changes to GM post-sale are scarce right now, but the deal will likely see current GM Chairman and CEO Dan Akerson leave the company and replaced with SAIC chairman Hu Maoyuan and president Shen Jianhua. GM’s headquarters should remain in Detroit, but will answer to Shanghai. Shanghai GM, SAIC’s joint-venture with GM in China, will likely be folded into SAIC down the road as it will no longer be necessary under Chinese law.

Though the announcement comes as a shock, the warning signs seem so clear now. Why GM kept Buick and killed Pontiac. Why the quintessential American midsize car, the Chevrolet Malibu, is debuting in Shanghai. Why the Chevrolet Cruze and Buick Regal were on-sale in China long before the U.S. Why the Buick LaCrosse was designed in China and why China is getting a Buick version of the Chevrolet Volt, along with a new plug-in hybrid Buick SUV. A deal like this doesn’t happen overnight, and it’s clear now that GM has been buttering-up SAIC for the past few years.

The only question is: Is a GM run by the Chinese Government a better deal than GM run by the U.S. Government? We’ll find out soon enough…April 1, 2012, to be exact.

Scott Evans on April 1 2011 5:17 AM
Motor Trend
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