How will Shanghai GM go if GM goes bankrupt?

kellywang's picture

The US Big Three automakers are meeting with Congress on December 2 with recovery plans for a $25 billion government loan. The struggling big three also aroused great concerns of Chinese automakers and consumers, reflected most in GM’s joint venture in China.

GM owns eight joint ventures in China, employing about 20,000 workers. The auto giant’s products in China include Cadillac, Saab, Opel, Buick, Chevrolet, and Wuling, the richest products lineup among all the foreign automakers in China.

Though GM lost $4.2 billion in the third quarter globally due to economic downturn, it still created new sales record in the Chinese market, said Kevin Wale, president and general manager of GM China. The auto giant, expected to see sales up 5% this year compared to 2007, plans to introduce more than ten new models to China in the coming two or three years, according to Kevin Wale. Read: Troubled GM likely to up investment in China

If a global company failed in management in its headquarters, impact will be felt by its Chinese business, including capital reserve, development of new products and delivery, Xu Changming, director of Information Resources Department under China’s State Information Center was quoted by Guangzhou Daily as saying.

According to the United States Bankruptcy Code Chapter 11, which permits reorganization under the bankruptcy laws of the United States, the possible GM bankruptcy will have limited effects on Shanghai GM. The technical center built by GM and its partner SAIC will be running as usual.

In contrast, Chapter 7 governs the process of a liquidation bankruptcy. If GM goes with Chapter 7, the auto giant will get tight hold of its technology, patent and brands, then Shanghai GM couldn’t produce Cadillac, Buick and Chevrolet and GM is likely to sell 50% shares in its Chinese JV.

In addition, if GM goes bankrupt, with either Chapter being adopted, suppliers of GM in China are inevitably affected, including components giant Norstar Automotive Industries Inc. and the Fuyao Glass Co.

SAIC has denied considering buying GM, citing GM's huge costs of compensating workers and other follow-up expenditure as barriers. Analyst said there could be opportunities for Chinese car makers to buy some assets, especially in technological areas, from GM. However, most insiders are inclined to believe it is not likely for GM to go bankruptcy, considering its importance in American industry.

By Kelly
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