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GM China seeking new cooperative partner

General Motors, the U.S. partner of Shanghai Automotive Industry (Group) Corporation (SAIC), is reportedly gearing up to find a second cooperative partner in China, according to local media reports.
A recent news story published in Zhongguo Jingying Bao (China Business) said that the likely candidate might be Jianghuai Automobile, one of China’s top commercial vehicle manufacturers based in Hefei of Anhui Province.
A staff with Jianghuai’s Commercial Vehicles Department told CBU/CAR that he was not aware of such cooperation. A Jianghuai public relations employee did not confirm or deny such a report when responding to a telephone enquiry. A PR official with GM China told CBU/CAR that she could not confirm the said cooperation.
According to the China Business report, however, details of a deal might be released in early 2006 if negotiations between the two parties go well.
Since its entry into the China market in the mid-1990s, the American auto giant has always been maintaining a “monogamous” relationship with partner SAIC, expanding rapidly in the passenger vehicle business. GM’s new move, if proven true, reflects the automaker’s new direction in its China operation.
One reason is the growing size of China’s commercial vehicle market. “There are approximately 30 million farm trucks running on rural roads,” an auto analyst was quoted as saying. “And these vehicles have to be upgraded or replaced as emission regulations tighten up.” China currently makes two million three-wheelers and 500,000 units of four-wheelers a year.
“Light commercial vehicles therefore will be in robust demand in the future,” said the analyst. Law of the People’s Republic of China on Road Traffic Safety has categorized a farm vehicle as a “low-speed truck” and it is now under the same administration road transportation authorities instead of that of farm equipment.
As the government will enforce stricter emissions, safety and fuel consumption standards, the traditional farm vehicles are likely to be replaced eventually by light- or mini-trucks.
Such potential business opportunities as a result of the reshuffle of the farm vehicle sector were confirmed by a study that GM China commissioned through the Farm Vehicle Development Research Center under the Ministry of Commerce.
GM started its research on China’s commercial vehicle market a year ago, according to another inside source quoted by China Business. The source said GM China’s Business Development Department had contacted several local commercial vehicle manufacturers for possible tie-ups.
GM’s interest in China’s commercial vehicle sector was prompted by its successful investment in its third joint venture in China, SAIC-GM-Wuling.
Working closely with partner SAIC and with an investment of $30 million, GM acquired 34 percent of the equity shares of the tripartite JV in 2002. As a result, SAIC-GM-Wuling has become the second largest mini-vehicle maker after Chang’an Automobile, doubling its annual sales of mini-vehicles, including mini-trucks.
But this time GM is considering choosing a new partner for a commercial vehicle joint venture, as SAIC does not make light commercial vehicles. The best choice for GM China to enter the light truck market swiftly would be to choose among existing market leaders.
Currently China’s top three light truck manufacturers are Beiqi-Foton, Jianghuai and Nanjing Auto.
Beiqi-Foton is now working with Daimler-Chrysler, partner of its parent company, Beijing Automotive Industry (Holding). Nanjing Auto Group is an existing partner of Fiat of Italy. So the only possibility left is Jianghuai, which only recently was deserted by Hyundai in its commercial vehicle joint venture.
Jianghuai is already the country’s second largest light truck manufacturer. Recently the company is moving into construction machinery truck sector, a low-end light truck market. Part of the efforts in this new sector is to develop light trucks that can replace farm vehicles.
In fact market leader Beiqi-Foton sells 80 percent of light trucks as construction machinery trucks.
A possible cooperation with Jianghuai following the Wuling model may offer a convenient shortcut for GM to move right into China’s light truck market even though with a late start.
GM’s troubles in North America have made it all the more imperative for the company to expand its market share in its growth markets such as China.
But it remains to be seen if Jianghuai would be interested in teaming up with a multinational automaker in the light truck business, a sector where Chinese automakers are already quite competitive in international terms. Jianghuai has also been known for its pride in independent development of automobiles.

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