General Motors Co. is increasing to 44 percent its stake in the Chinese Wuling mini-vehicle venture it has with partner SAIC Motor Corp., the Detroit-based automaker said in a U.S. regulatory filing yesterday.
The automaker said in an updated prospectus for its $10.6 billion initial public offering that it will increase its stake in SAIC-GM-Wuling from 34 percent. GM said it bought the additional shares from the Wuling Group. If approved by regulators in China, Wuling would own 6 percent of the venture while SAIC retains 50 percent.
Increasing its hold on the Wuling venture is one way for GM to boost profits from the world’s biggest car market. GM International Operations made $646 million in earnings before interest and taxes in the third quarter and $2.48 billion in the first nine months of the year. That unit includes China, Brazil, India and Russia and excludes North America and Europe.
“GM wants to get to the expansion markets and get a bigger piece,” said Jim Hall, principal of 2953 Analytics Inc., a consulting firm in Birmingham, Michigan. “In China, commercial vehicles have a lower unit profit so the way to maximize profit is to increase their stake.”
SAIC-GM-Wuling sales rose 5.1 percent in October to 93,935 vehicles. The venture has sold more than 1 million vehicles this year, helping GM and its venture partners sell nearly 2 million vehicles in China through October this year, GM said.
Shares in SAIC rose 0.1 percent to 19.72 yuan as of 11:08 a.m. in Shanghai trading. The stock has declined 1.9 percent in 2010.
GM entered into an agreement to increase its stake in the Wuling venture in the third quarter, the company said in its filing. GM announced a memorandum of understanding on Nov. 3 that it will strengthen ties with SAIC to explore new fuel-efficient technologies. The two companies said they will work on electric vehicles together and seek ways to expand into emerging markets like India.
Profits in GM International Operations have declined throughout the year from $1.16 billion in the first quarter to $672 million in the second quarter to $646 million in the third quarter.
Raising its stake in the joint venture that contributes the bulk of GM’s China sales is positive for the U.S. automaker’s upcoming share sale, said Marvin Zhu, senior analyst at J.D. Power & Associates in Shanghai. GM may also speed up the transfer of production and engine technology to the venture once its stake has increased, he said.
“China is a good reason for investors to invest in GM,” Zhu said.
The Wuling news came in a regulatory filing as GM executives are trying to show the company’s profit potential as they work to sell 365 million shares for $26 to $29 a share.
The U.S. Treasury is selling shares to return a portion of taxpayers’ $49.5 billion investment in the company. Including the repurchase of the Treasury’s preferred shares after the IPO, taxpayers will have received $9.5 billion in repayments, interest and dividends from GM since the automaker emerged from bankruptcy in July 2009, according to the Treasury.
To break even, GM shares need to sell for an average of about $44 a share. The U.S. is relying on secondary offerings to fetch higher share prices than in the IPO.
A GM spokeswoman, Renee Rashid-Merem, declined to comment.