Aug. 30 (Bloomberg) -- General Motors Co., China’s largest overseas automaker, formed a 50-50 joint venture with China FAW Group Corp. to make light trucks and vans in the country as it aims to offset plunging U.S. vehicle demand.
The venture between Detroit-based GM and FAW has a total investment of 2 billion yuan ($293 million), GM said in a statement today. The companies signed a memorandum of understanding in November 2007 and received Chinese government approval in July, GM said.
The partnership with FAW, called FAW-GM Light Duty Commercial Vehicle Co., will be GM’s third joint venture with a local automaker. General Motors is betting on China, its second-biggest market, for growth as demand for its vehicles tumbled 38 percent in the U.S. this year through July, compared with a 43 percent sales increase in China.
“The competition in this segment is fierce, it’s not going to be easy to make this venture successful,” Zhang Xin, a Guotai Junan Securities Co. analyst in Beijing, said in a phone interview. “Neither GM nor FAW is that strong in light commercial vehicles.”
Trucks and vans will be built at FAW’s factories in south China’s Yunnan province and Harbin city in the north east. They have a total capacity of 100,000 units. The construction of a new plant in Harbin is under way and will add another 100,000 vehicles to the venture’s total annual capacity by the end of next year, GM China President Kevin Wale said today.
Sales Forecast
The venture aims to sell between 80,000 and 90,000 vehicles this year and 100,000 next year, he added. It may export the products overseas should there be demand.
GM now makes passenger cars in China with SAIC Motor Corp., China’s largest domestic automaker, in an equally owned joint venture. That partnership, Shanghai General Motors Co., boosted sales 26 percent in the first seven months to 345,332 vehicles, helped by government stimulus programs aimed at spurring auto sales.
The U.S. automaker also makes minivans in a venture with SAIC Motor and Liuzhou Wuling Motors Co. SAIC-GM-Wuling Automobile Co. sold more than 600,000 units in the first seven months.
“GM is stronger in passenger cars while FAW makes better medium commercial vehicles,” Zhang said. “I’m not so optimistic about this venture.”
Total auto sales in China, including trucks and buses, rose 23 percent this year through July, as the country surpassed the U.S. to become the world’s biggest auto market.
