GM Poised to Win $1-Billion Auto Contract in Shanghai : Asia: General Motors beats Ford with the deal to co-manufacture up to 300,000 cars a year with a state-owned Chinese partner.
While the presidents of China and the United States met in New York to repair rocky relations between the two nations, General Motors Corp. and a Shanghai company prepared to seal a mammoth deal that shows that U.S.-Chinese commercial ties, at least, are right on track.
Industry sources confirmed that the American auto giant has won a $1-billion-plus agreement to build mid-size cars in China in what would be one of the highest-profile U.S. investments here ever.
The Chinese state company that would work with GM, Shanghai Automotive Industry Corp., selected the top U.S. auto maker over its archrival, Ford Motor Co.
The deal calls for GM to produce 150,000 sedans a year at first, ultimately aiming for 300,000 cars as more Chinese hit the highways.
The joint venture represents an important foothold in China, with foreign companies targeting the country as both a manufacturing base and a potential market.
Shanghai Automotive, one of China’s Big Three car makers, already has a 50-50 joint venture car plant with Germany’s Volkswagen. Shanghai Volkswagen turned out 115,326 cars last year, almost half of the Chinese car production.
GM President Jack Smith, on a recent visit to China, estimated that Chinese car buyers will outnumber American auto owners in 15 to 20 years.
As part of the negotiations, both Ford and GM agreed not to discuss the deal until the Shanghai group officially announces the winner. On the record, spokesmen are tight-lipped.
“We are negotiating with the two companies and we will choose the best one,” Shanghai Auto director Shen Jianhua said. “It should be fair play.” Dian Terry, a GM spokeswoman in Beijing, said: “Nothing is certain. . . . Nothing is firm.”
But privately, those close to the deal concede that GM and Shanghai officials are preparing for a big announcement early next week, probably in Detroit, where a Shanghai auto industry delegation led by the vice mayor will be attending an auto conference.
“At this point, the deal is done,” a U.S. source said. “But they’re sitting there with their fingers crossed and their mouths closed until the ink is dry.”
Executives have reason to be wary. Shanghai Automotive originally promised to announce its decision a year ago, then delayed it twice.
But the coincidence of the auto conference and the Tuesday summit between Chinese President Jiang Zemin and President Clinton--a session designed to steer the U.S.-China relationship back on course--may have provided an auspicious opportunity. Chinese officials used a similar state visit to Germany last spring to announce that Mercedes-Benz had won a hard-fought contract to manufacture minivans, beating out Chrysler Corp. and Ford.
Mercedes’ victory raised suspicions that China was punishing U.S. bidders because of displeasure over White House policies. That made the the two-year race for the lucrative sedan partnership even more intense.
“We’re playing hard and we’re playing to win,” GM’s Smith said three weeks ago, on his third visit to China in just over a year. Ford and GM alternately upped the ante for the chance to co-produce 300,000 cars a year, sponsoring goodwill programs to help China tune its engines and its orchestras.
While Shanghai Auto weighed the offers of the two companies, Ford and GM shifted into high gear to secure the contract.
Ford established a $16-million fund to benefit science and technology research. GM plans to invest $40 million in technology institutes in China, with two already opened this year in Beijing and Shanghai to help pass on auto know-how. For good measure, GM gave $200,000 to the Shanghai Symphony.
But GM’s promise to transfer sophisticated techniques to design and tool new models--which other joint venture partners such as Volkswagen have failed to provide--may have been the deciding factor. China has designated auto making as one of its “pillar industries” for the next century, and gaining new technology is key.
Meanwhile on Tuesday, Mercedes-Benz kept up the pressure, announcing in Shanghai that it will inject $100 million by the end of next year to build a sales and service network across China, in addition to its minivan production plans.
The president of the company’s Mercedes-Benz China group made the comments at the Shanghai launch of the new E-Class auto, a part of Mercedes’ efforts to expand into the nation’s promising auto market.
* U.S.-CHINA SUMMIT: Clinton, Jiang meet to narrow differences over trade, rights, weapons. A1
