China stake a ‘tricky sell,’ even for global GM

September 21, 2010 http://detnews.com/article/20100921/OPINION03/9210313

China stake a ‘tricky sell,’ even for global GM

DANIEL HOWES

It’s probably a safe bet to say the feds didn’t rescue General Motors Co. from imminent collapse just to sell a chunk of the new company to the Chinese.

Yet there’s a good chance it will happen anyway, whatever protectionist sentiment looms in this fitful climb from recession, whatever the probable objections from the heartland and some in Congress, whatever the we-had-to-save-the-jobs rationale advanced by current and former members of Team Obama.

A Chinese stake in GM is a potentially real consequence of the Detroit automaker’s initial public offering later this year, even if it risks inflaming latent nativist passions in the United Auto Workers and others who would bridle reflexively at the prospect of capitalists in the Chinese communist party using proxies to own pieces of an American icon.

Why? Because Chinese ownership of a small, single-digit stake in a recapitalized GM would be in the interests of the Obama White House (which has a political goal of seeing GM become independent again), GM management (which foresees more growth and fatter profits in China) and a Chinese automaker like SAIC Motor Corp., a government-controlled player and GM partner in China and India that is interested in owning shares of GM.

Think of it this way: The success of a new GM and its impending IPO would help protect SAIC’s investment in joint ventures with GM. Holding a stake in the Detroit automaker could strengthen a GM-SAIC foundation that could morph into more extensive ties over the long term — the key words being "long term."

Officially, the Treasury Department, which owns 61 percent of GM, says would-be GM shareholders could come to the IPO from "multiple geographies" and that it "will not involve itself in decisions regarding allocation of shares to specific buyers."

Right. That doesn’t mean diddly in a white-hot campaign season that has prompted, among other things, bipartisan harangues over alleged Chinese currency manipulation as well as union-backed complaining about bilateral trade imbalances between the United States and China. If the recent past is prologue, Treasury’s we’ll-treat-everyone-the-same statement won’t be the last word on who might own a piece of GM.

A little perspective is in order. Foreign ownership of indigenous automakers is commonplace and has been for years in today’s global auto industry, be it through rival automakers or sovereign wealth funds directly connected to governments, or both. The trend is accelerating, a byproduct of the global financial meltdown and the shifting of market priorities from North America and Western Europe to Asia-Pacific, India and Latin America.

Italy’s Fiat SpA expects to up its stake in Chrysler Group LLC next year to 35 percent from 20 percent, presumably with the blessing of an Obama administration that brokered the tie-up in the first place. The government of France still holds a minority stake in Renault SA, and Renault owns more than 40 percent of Japan’s Nissan Motor Corp. The state government of Lower Saxony in Germany owns 20 percent of Volkswagen AG.

Aabar Investments of Abu Dhabi, a government entity, owns 9.1 percent of Daimler AG, one of Germany’s largest industrial concerns. The Kuwaiti Investment Authority, an arm of its government, owns 6.9 percent and Renault-Nissan owns 3.1 percent of Daimler. Altogether, according to Daimler, foreign entities hold more than 70 percent of the company.

GM remains a major player in the foreign ownership game, too. It has owned Germany’s Adam Opel GmbH since the 1920s, as well as Vauxhall in Britain and what was GM Continental in Belgium. The Detroit automaker acquired assets of South Korea’s Daewoo Motors out of bankruptcy, transforming it into GM’s product development and low-cost manufacturing hub for markets worldwide.

Still, the politics of who will end up owning meaningful stakes of the new GM are likely be more fraught than a simple statement issued by Treasury on a Friday afternoon. How would an administration rationalize using taxpayer money to rescue an American automaker only to see influential stakes in GM sold to proxies for such geopolitical rivals as China or Russia?

The words "tricky sell" don’t begin to describe the nuance an argument like that would require, especially to friends in organized labor who’ve made China and all things Chinese their bogeyman-in-chief for what ails their members and manufacturing in the United States.

Which doesn’t mean it won’t happen anyway in the name of "repaying" taxpayers — and sooner than you might think.

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