Page last updated at 11:34 GMT, Friday, 4 December 2009

New GM-China tie-up to make small cars for India

Tata Nano and crowds
The small car is the star in India's fast-growing market

US car giant General Motors plans to form a new venture with its Chinese partner, SAIC, to focus on the small car market in India.

It aims to produce the vehicles within India itself, making SAIC the first major Chinese company to so do.

GM has said it wants to use India as a small car production base for export.

At the same time, GM announced it would turn over 1% of its biggest Chinese joint venture to SAIC - which would give the Chinese majority ownership.

In a statement, SAIC chairman Hu Maoyuan said: "SAIC and GM are in a strong position to introduce [vehicles] that will satisfy the needs of consumers in India and other high-potential global markets."

I can only imagine it's urgent need for money
John Bonnell, director of JD Power

GM, which is based in Detroit, is overhauling its global operations following a restructuring in a US bankruptcy court that left 60% of the company in US government ownership.

Analysts said GM's decision to surrender control of its main China operation and share access to India was a bad sign for GM.

John Bonnell, director of JD Power in Bangkok, said: "I can only imagine it's urgent need for money."

Although the deal with GM makes SAIC the first Chinese carmaker to come to India, analysts say the company will have to battle Indian consumer prejudice against Chinese-made goods.

Road test

But Johnny Wong, a motors analyst at Yuanta, said it still represented a big step forward for SAIC: "India is a test case of SAIC's ambition for overseas expansion and it may further expand into South East Asia when the time is right."

JD Power forecasts that car sales in India will grow from 1.7 million in 2008 to 3.2 million in 2015.

Another, separate, announcement on Friday by General Motors said it was buying out the other half of an existing joint venture with Japan's Suzuki in Canada. It leaves GM without a Japanese production partner.

Earlier this year, it cut manufacturing links with Toyota in California.

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