General Motors Co., together with Chinese automaker SAIC Motor Corp., has expressed interest in the acquisition of struggling automakers in China, sources have told Bloomberg. GM is working under the belief that the Chinese auto industry should have undergone consolidation a long time ago. These sources added that GM, which has already been named as the top foreign automaker in China, seeks to boost sales by about 75% by 2015 to 5 million.
It’s believed that entering a deal with another automaker is a way for its ventures to expand. The Chinese government aims to keep jobs but at the same time, it is urging consolidation that is reminiscent of the auto industry’s shrinking about a hundred years ago that made GM the largest automaker in the world for 80 years.
To expand in China, it’s not as simple as buying a plant there. Foreign automakers are restricted on how many partners they can have or what percentage of a plant they could own. In 2012, China said that it won’t provide incentives for foreign-owned auto plants.
This led to the increase in the value of China’s many underutilized auto plants. Around 10 of China’s 71 automakers weren’t able to sell one vehicle last year. Han Weiqi, an analyst with CSC International Holdings Ltd. in Shanghai, said that it’s a lot easier to ask the government to approve an acquisition than to allow new capacity.
The analyst also said that this corresponds with the government’s order to consolidate the industry and lessen the number of players. LMC Automotive said that China has the most overcapacity in the world. Plants in China can deliver about 10 million more vehicles than they presently produce.
This is higher than the number of vehicles built in any country other than China or the U.S. GM and SAIC intend to open two assembly plants in China in 2014. In that case, their joint ventures can produce just around 4 million cars, sport-utility vehicles and microvans annually.