Is a Chinese Company Preparing to Buy General Motors?

SHANGHAI, China — Shanghai Automotive Industry Corp. (SAIC) has been persistently reported to be interested in buying General Motors. This week, the company denied to Chinese media that it is considering such a move. SAIC and China's Dongfeng Motor have both been named as prospective buyers of GM as the former global superpower struggles to remain afloat.

Hu Xindong, a spokesman of Hong Kong-listed Dongfeng, declined to comment yesterday. But he earlier said the nation's third-biggest carmaker has been contacted by financial groups which have close relationships with GM over a possible takeover, according to National Business Daily.

Although Chinese carmakers are eager to expand overseas, analysts are saying they are still not financially capable of such a large project as a purchase of GM.

**** Liusheng, an auto analyst at China Merchants Securities Co, commented: "Besides liquidity constraints, it is also impossible for Chinese carmakers to handle GM's huge costs of compensating workers and any other follow-up expenditure."

But other analysts also said there could be opportunities for Chinese carmakers to buy some assets, especially in technological areas, from GM.

Meanwhile, it is an interesting question whether the financially strapped U.S. company will continue with its own expansion in China, now the world's second-largest car market.

Ding Lei, general manager of GM's flagship venture in China, Shanghai General Motors, said the China market will remain "the top priority for future development" and predicted "There won't be changes in GM's investment in China." Ding noted that although GM is shedding brands and closing plants in the U.S. market, business in Latin America and Asia remains healthy.

Although the stocks slump and a slowing economy in China is also hitting demand for vehicles, the 11 percent sales increase for the first 10 months is of the world's best.

In China, GM is also facing challenges with declining market share and sluggish sales, despite new models like the Buick Excelle and the Chevrolet Aveo compact car. Nevertheless, the company is boosting production at its new plant in Shenyang to 150,000 units per year.

Shanghai GM this week launched a revamped Buick Regal sedan in Shenzhen, as part of its efforts to upgrade products to win back Chinese customers who have been buying more cars from Volkswagen and Toyota. Next year, the Chevrolet Cruze mid-class sedan will also begin domestic sales ahead of another 10 new models for the Asia-Pacific region by 2010, according to Ding.