Automotive JV to merge Daewoo engine project

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Last updated at: (Beijing Time) Monday, February 02, 2004

Automotive JV to merge Daewoo engine project

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Shanghai GM, a Sino-US car joint venture, and its two parent companies will merge a huge engine development project left over by former South Korean automaker Daewoo Motor in East China's Shandong Province this year.

The two parent companies -- General Motors and Shanghai Automotive Industry Corp (SAIC) -- have agreed with creditors of Daewoo Motor on the merger of the engine project, said Chen Hong, president of Shanghai GM.

"We are in final negotiations with Shandong provincial government for the merger," Chen said in an interview.

"Shanghai GM will be responsible for the management of the engine project," he said.

But he did not reveal any financial details for the deal.

In 1999, Daewoo Motor and the provincial government formed a joint venture with a total investment of 7.8 billion yuan (US$940 million) to produce 1.3, 1.5 and 1.6-litre engines and transmissions in Yantai, a coastal city in Shandong.

However, the joint venture, with an annual production capacity of 240,000 units, came to a standstill in 2000 due to Daewoo Motor's bankruptcy.

The merger was widely anticipated after Shanghai GM, General Motors and SAIC in December 2002 acquired a car plant in Yantai, which was owned by the provincial government and assembled Daewoo's vehicles.

Shanghai GM and the two parent firms paid 900 million yuan (US$108 million) to have a 50, 25 and 25 per cent stake in the Yantai car plant, which produces the Buick Sail compact car.

"The merger plan is very understandable as it will facilitate General Motors' expansion in China's car market, especially in the low and medium segment," said Yale Zhang, an analyst from Automotive Resources Asia Limited, an industry consultancy firm.

General Motors also runs a mini vehicle joint venture in South China's Guangxi Zhuang Autonomous Region and a sport utility vehicle venture in northeastern Liaoning Province.

The merger will be a new step in Shanghai GM's strategy "to make full use of global resources to become an internationally competitive automaker," Chen said.

"Shanghai GM aims to control 20 per cent of China's passenger car market within five to six years," Chen said.

The joint venture plans to produce 285,000 vehicles this year, more than 10 per cent of market share, he said.

Last year, the joint venture's sales increased by 81.6 per cent to 201,000 units, or 9.8 per cent of the market share.

Shanghai GM, which also makes the Buick Regal and Excelle sedans and Buick GL8 commercial wagons, now is the third biggest Sino-foreign car joint venture after German Volkswagen's two joint ventures in Shanghai and Northeast China's Jilin Province.

"However, our sales last year are just a start in the context of the auto industry globalization and we are still lagging far behind international levels in sales and services, manufacturing, purchasing and development capabilities," Chen said.

"We plan to provide three brands -- the Buick, Cadillac and Chevrolet -- and become a full-range carmaker before 2008," Chen said.

The venture will produce the Cadillac CTS and SRX luxury sedans later this year, he said.

The venture will also start to prepare for the introduction of a Chevrolet vehicle this year.

Chen predicted that China's total vehicle market will reach 5.5 million units this year, including 2.8 million passenger cars, mainly boosted by the nation's steady economic growth.

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