Auto Industry

Playing the percentages

GM battles for number one spot. But it wants its 1% back too…

Playing the percentages

One sold every 12 seconds

“A new car or van sold every 12 seconds,” crowed the press release announcing the results of General Motors’ joint ventures in China last year, where it sold a record 2.55 million units.

At an industry level, sales of new cars slowed dramatically in 2011 for a 2.5% increase, compared to a 46% rise in 2009, and 32% in 2010. The reduction stemmed from the phasing out of government purchase incentives, publicity about licence restrictions in various cities, and the general tightening in corporate and consumer credit.

Of course, it was always going to be hard to maintain the manic growth of the previous two years. But despite the slowdown, foreign carmakers have done better than their domestic rivals, with sales of more expensive models holding up better than for cheaper alternatives. GM’s sales rose more than 8%, well above the industry average. German carmaker Audi did even better in percentage terms, rising 37% to 313,036 units.

By contrast, domestic manufacturer Chery saw sales of its own brands fall by 4% and Geely reported just a 1.3% increase, says IHS Global Insight.

A decent year for GM in China also means that it looks like regaining its position as the world’s top-selling carmaker, a title that it gave up in 2008 after more than 70 years in pole position.

The speculation is that this will leave it with around 9 million cars and trucks sold worldwide, at least 800,000 more than its German and Japanese rivals.

Here’s where the debate gets more contentious, says the Associated Press. GM’s total includes 1.2 million small vans sold in China through its joint venture in Guangxi with Shanghai Auto (SAIC) and Wuling (they’re known as ‘bread vans’ or mianbao che locally). The overwhelming majority of the venture’s sales are Chinese brands, unlike the GM brands sold at the separate tie-up with SAIC in Shanghai.

Exclude this segment and Volkswagen surpasses its American rival as global top dog (VW only reports sales of its own brands SEAT, Audi, Lamborgini, Bentley and Skoda).

As a debate, it’s probably one for the petrol-heads. But rankings also seem to be a pressing concern for Shanghai Auto, GM’s leading partner. At least, it was in December 2009, when it persuaded GM to sell a single percentage of its stake in the Shanghai venture for $85 million.

At the time, the move puzzled Greg Anderson, an industry expert who monitors Chinese auto policy from his blog ChinaBizGov. When Anderson asked a senior SAIC executive about the transaction, he got an unexpected reply: it was all about looking good for the Fortune 500 global rankings. The extra 1% was important as it meant that SAIC became majority owner of the business and could roll-up the joint venture’s revenues into its own income statement.

Quite why GM was ready to sell the 1% is less clear, Anderson suggests. The common opinion back in late 2009 was that it needed the money. But that seems doubtful, with the relatively small amount paid, and at a time when the US carmaker had more than $14 billion in cash on its balance sheet.

And why cede management control to your Chinese partner for just $85 million, Anderson asks?

Of course, GM may have struck the deal as a way of shoring up its local relationships, especially at a time when its North American business was in meltdown and the China market had taken on teeth-clenching importance. It also seems to have been hopeful of announcing more ventures with SAIC in other developing markets.

But now that its near-death experience has been negotiated, GM wants to buy its percentage point back.

“It’s in process. We hope that will be resolved in the coming months,” CEO Dan Akerson told reporters at the Detroit Auto Show. “I know it’s been to their board.”

Anderson wonders if it will be quite as straightforward as Akerson implies. Even if it can be done, GM will probably need to pay a lot more than $85 million…

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