(GM) General Motors Buys Back Stake in China Joint Venture

General Motors Co. (GM) plans to buy back the 1% stake in its Shanghai GM joint venture in China with Shanghai Automotive Industry Corporation (“SAIC”). The automaker sold the stake to SAIC in 2010 for about $85 million in order to cope with the global financial crisis, according to a deal worked out before GM filed for bankruptcy in 2009.

The buyback would allow both the partners to enjoy 50:50 shares in the operational side of the joint venture. Meanwhile, SAIC would maintain a 51% share in the sales side of the joint venture. The agreement is now awaiting government approvals.

Shanghai GM is the biggest automaker in China in terms of sales. Last month, it registered an 11% growth in sales to 113,047 vehicles.

SAIC also operates a joint venture Shanghai VW with German automaker Volkswagen AG (VLKAY). The joint venture saw a 14% rise in sales to 106,678 vehicles last month.

Auto sales in China had grown at a double-digit pace since 1999, except in 2008 when the global economic crisis crept in. In 2009, China overtook the U.S. as the biggest auto market in the world by sales volume when the Beijing government introduced a stimulus package, including tax incentives for small cars with engine sizes of 1.6 litres or smaller.

However, the incentives were scrapped last year and the Beijing government imposed quotas on new car registrations in order to control traffic congestion. As a result, new car deliveries plummeted 56% to 403,500 units in 2011.

Nevertheless, China’s automotive industry outlook is promising in 2012. According to China Association of Automobile Manufacturers (CAAM), car sales in 2012 is expected to grow by 9% in the country, which is much higher than 2011 (2.5%).

GM, a Zacks #3 Rank (Hold) company, posted a profit of $0.7 billion or 39 cents per share in the fourth quarter of 2011, missing the Zacks Consensus Estimate by 3 cents per share. The results excluded net loss from special items of $0.2 billion or 11 cents per share. It compared with a profit of $0.9 billion or 52 cents per share in the fourth quarter of 2010.

Revenues in the quarter scaled up 3% to $38.0 billion, which was in line with the Zacks Consensus Estimate. Unit sales escalated 3% to 2.2 million vehicles from the fourth quarter of 2010. The automaker occupied a market share of 11.7% during the quarter, up from 11.5% in the year-ago quarter.

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