SAIC and GM are hoping to manufacture and sell small-size cars in India [EPA]
US car-maker General Motors and Shanghai Automotive Industry Corp (SAIC), its Chinese partner, are expected to begin manufacturing and selling small-size cars in India, which is considered to be one of the fastest-growing automobile markets in the world.

The two companies, which dominate the Chinese automobile market, said they had set up a 50-50 joint venture aimed at expanding in emerging Asian markets.

In a press conference on Friday, the two companies said they will invest a total of $650mn in the Indian venture with the aim of selling some 225,000 vehicles a year.

"We have had a successful relationship with them [SAIC] for 12 years," Nick Reilly, the president of GM's international operations, told reporters during a conference call on Friday.

"It seemed to us a sensible time and a big opportunity to deepen that relationship and broaden that relationship outside of China."

Global restructuring

GM, which is restructuring as it emerges from bankruptcy, will also sell a 1 per cent stake in its existing China venture to SAIC for about $85 million, giving China's top car-maker control and allowing it to consolidate the venture's accounts onto its balance sheet.

GM is the biggest foreign automaker in China, with sales expected to hit 1.4 million vehicles in the country this year. SAIC is the top Chinese car manufacturer in a local market which has seen vehicle sales soar 37.7 per cent to date in 2009.

For SAIC, gaining control of the China venture and equal say with GM in India could provide an opportunity to become a global player in an auto market that has suffered one of its deepest downturns in memory.

"India is a test case of SAIC's ambition for overseas expansion, and it may further expand into Southeast Asia when the time is right," said Johnny Wong, auto analyst at Yuanta in Hong Kong.

Foray into India

Analysts said the move by SAIC would mark a significant overseas expansion by a Chinese manufacturer, and pit the two partners against established Indian car-makers Tata Motors and Maruti Suzuki.

Tata Motors has years of experience in manufacturing small, economic cars [REUTERS]
"The foray into India is both a challenge and opportunity," said Liu Feng, an analyst with Southwest Securities.

"It is a challenge because Tata and large car-makers are also experienced in making mini vehicles."

Tata dominates India's commercial vehicle market while Maruti Suzuki is the biggest seller of passenger cars.

Earlier this year, Tata launched what has been called "the world's cheapest car", designed to car ownership within the reach of more Indians.

The Nano, a four-door, five-seater vehicle with a two-cylinder 623cc rear engine and top speed of 105kmph, is only 3.1m long and priced at 100,000 rupees (about $2,000).

Growing market

There is consensus among analysts that the Indian market offers both sides an opportunity to tap one of the fastest growing markets in the world.

"The Indian market is an extremely good one because it is an  emerging market with a lot of growth potential," says Klaus Paur, the North Asia director for market research company TNS.

Liu said the move could help protect SAIC from a possible future slowdown in local growth rates.

"For SAIC, it is better to walk on two legs as the overseas market will (offset potentially weaker) domestic demand next year and the year after next."

The foray into Indian markets comes after years of efforts by GM to increase sales and launch a small car in the sub-continent.

Source: Agencies