GM Expands China Manufacturing Presence with Factory Purchase

GM, partner take over former Daewoo China plant

SHANGHAI, March 7, 2004; Ben Blanchard writing for Reuters reported that General Motors and its Chinese partner will take over a defunct engine plant, formerly run by South Korea's Daewoo Motors, gaining a second mainland purchase in as many weeks in the race to catch market leader Volkswagen.

General Motors Corp, the world's top car maker, and main partner Shanghai Automotive Industry Corp (SAIC), China's second-biggest homegrown auto maker, will buy a half-stake in the $275-million plant controlled by the government of the north-eastern province of Shandong, where the plant is located.

The deal, announced on Sunday about a week after GM and SAIC unveiled a separate pact to take over a troubled car factory, helps to consolidate GM's position in China, the world's fastest-growing major car arena.

Terms of the latest deal, valued at 2.28 billion yuan ($275.4 million) were not disclosed. The factory has been idle since 1997.

"Both are existing brownfield facilities, so they provided some opportunities for us to quickly build up our capacity," GM's spokeswoman, Daphne Zheng, said.

The deal tightens the auto giant's grip on the prosperous north-eastern coast -- an alternative manufacturing base to GM's main capacity in the country's financial stronghold of Shanghai, where it has operated since 1997.

GM has managed to claw market share from rivals such as Volkswagen AG, the country's pre-eminent auto maker with a commanding 33 percent share of nationwide sales.

GM now owns about 8.5 percent of a market that saw car sales nearly double to two million sedans in 2003.

Sales from GM's four plants in China rose 15.2 percent over the year to January, to 34,982 vehicles.

NEW POWER BASE?

Last year, GM said it would raise capacity by 50 percent in China to 766,000 units, adding production lines to its main Shanghai plant and another in the southern region of Guangxi.

With the latest manoeuvre, GM and its partner will control an engine plant and two car-making bases in the northeast of the country, on the fringes of an ailing industrial rust belt that Beijing has vowed to resuscitate.

GM and SAIC will end up with an effective 50:50 stake in the engine plant in the coastal city of Yantai, set up in 1996 with capacity of 300,000 engines a year. It will be run by Shanghai GM, the U.S. firm's 50-50 venture with SAIC.

The Sunday announcement comes hot on the heels of a takeover of Jinbei GM, an underused facility that cranks out sport utility vehicles in the north-eastern province of Liaoning.

In 2002, GM agreed to invest 900 million yuan in a car-making plant -- also in Yantai -- that has an annual capacity of 100,000.

Those agreements would be "crucial as we carry out the expansion of our primary manufacturing facility in Shanghai," Chen Hong, SAIC's president, was quoted as saying.

The latest move also raises a possibility that GM could make and export cars from Shandong, close to countries such as South Korea. But Zheng said there were no such plans at present.

GM and partners Shanghai Auto and Japan's Suzuki Corp bought a majority stake in Daewoo Motor in 2002 for $251 million, creating GM Daewoo Automotive and Technology Co.

Daewoo Motor is now liquidating assets not covered by that acquisition.