You could almost feel the hackles rising in Detroit (and in Congress): According to recent reports, China's SAIC Motors has reached out to General Motors about buying a stake in the iconic American company when it goes public later this year.
SAIC -- sometimes referred to as Shanghai Auto ("SAIC" stands for Shanghai Automotive Industry Corporation) -- is one of China's "Big Five" automakers, the companies that dominate much of the Chinese auto market. Like many of China's largest companies, the Chinese government has a stake in SAIC -- and that's what has those hackles rising.
But is there really anything to worry about here?
China is critical to GM
GM-watchers know that the company's presence in China is enormous -- Buick, believe it or not, is a much-desired brand among upwardly mobile Chinese, and the automaker's sales in China have actually outpaced its market-leading U.S. sales so far this year.
What's more, GM's Chinese sales dwarf those of key global rivals like Ford (NYSE: F), Toyota (NYSE: TM), and Honda (NYSE: HMC) -- and the company's lead shows no sign of going away. GM's management did lots and lots of things wrong over the last decade-plus, but their China program was not one of them -- and as with Ford's, it's expected to be a key source of earnings growth for GM over the next decade.
And here's the thing that some folks seem to be missing: Much of that success was accomplished hand-in-hand with SAIC.
See, foreign automakers can't do business in China except via joint ventures -- this is the Chinese government's way of bootstrapping their own domestic industry. And SAIC is GM's partner in key ventures -- including GM Shanghai, which sells Buicks, Chevys, and Cadillacs, many made locally.
Investing in a partner
Just as SAIC is critical to GM's success in what has become the automaker's most important engine of growth, GM is critical to SAIC -- the two companies' joint ventures are functionally China's biggest automaker. It seems like a natural thing for companies that are so closely linked to want a small mutual ownership interest -- a Reuters report said SAIC was seeking a "single digit" interest, under 10%.
And while GM has taken some heat for its activities in China -- a recent decision to make Cadillac a sponsor of a film about the Chinese Communist Party's history led, predictably, to outbursts from the American far right -- by and large its Chinese efforts have been an immense boon for the company, one of its few bright spots in recent years.
So who will own GM?
GM's IPO roadshow will begin, according to reports, shortly after the November elections. There has been a great deal of speculation about potential "cornerstone" investors in the upcoming issue, with GM's majority shareholder -- the U.S. Treasury -- saying last week that they expect "potential investors will be sought across multiple geographies with a focus on North American investors, in line with what is typical in similar transactions."
In other words, it could be anybody -- but the Treasury expects it to be largely North Americans. And it probably will be. Consider: GM will surely be re-added to the S&P 500 and other indices in short order after it goes public. It's reasonable to expect, then, that the primary holders of GM stock will look a lot like the primary holders of, say, General Electric's stock -- names like Vanguard, Fidelity, and T. Rowe Price are a few that stand out on that list.
Long story short, an SAIC investment, despite the company's connection to the Chinese government, would simply be a good business move by one of GM's most important business partners. While Congress has raised a fuss about other potential deals between Chinese and American companies -- a proposed Huawei Technologies deal with Sprint Nextel (NYSE: S) generated some choice remarks from Republicans last month -- this is one that seems hard to fault, when looked at objectively: If SAIC were a Dutch company, nobody would think twice about it.
Of course, in the end, GM is likely to be owned mostly by Americans. But as GM continues to evolve into a truly global company, it's reasonable to expect that its ownership will be increasingly global as well -- it only makes sense.
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