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WSJ FEBRUARY 6, 2009

GM Holds Talks With FAW Group on China Venture
By PATRICIA JIAYI HO and NORIHIKO SHIROUZU

BEIJING -- General Motors Corp., which is currently surviving on U.S. government loans at home, is in expansion mode in China, holding talks with state-owned auto maker FAW Group Corp. on a possible new joint venture to make light commercial vehicles.

GM said Thursday that it is in talks with FAW Group, one of China's biggest car makers, to set up a "potential partnership." A GM spokeswoman in Shanghai declined to provide further details, saying the talks are continuing.

According to people familiar with the situation, the talks involve creating a joint venture to produce large light commercial vehicles, such as vans and trucks, similar to Ford Motor Co.'s Transit van.

News of the talks comes after GM in December opened a new passenger-vehicle plant in the northeastern Chinese city of Shenyang. The Shenyang plant is the fifth factory GM runs with main Chinese joint-venture partner SAIC Motor Corp.

In addition, GM has a three-way joint venture with SAIC and Wuling Automobile Co. that produces and markets micro minivans. FAW, which would be GM's third vehicle-production partner in China if a deal is concluded, already has passenger-vehicle joint ventures with Volkswagen AG and Toyota Motor Corp.

GM hopes growth in China, among other emerging markets, can help offset market-share losses in the U.S. China has been the world's second-largest car market in recent years, but last month vehicle sales in China exceeded those in the U.S. for the first time.

As GM tries to expand manufacturing capacity in China, growth in auto sales here has slowed considerably. Last year auto sales grew only 6.7%, ending a decade-long run of double-digit sales growth.

Last year began with monthly sales growth rates in the double-digits. But in August, demand for autos started to show signs of weakness, and it began contracting rapidly in the last two months of the year. In December, auto sales, including passenger cars and commercial vehicles, fell 11.6% to 741,600 units.

GM believes demand in the China's auto industry will likely remain soft this year and in 2010. But "in the medium to long term, we remain very bullish about the China market," GM's Asia Pacific president, Nick Riley, said in a recent interview.

Separately, GM's Thai unit said it would seek financial support from the government and local banks to help fund the development of a 15 billion baht ($429.5 million) pickup truck project.

GM representatives have held talks with the Thai Industry Ministry, but declined to elaborate on the discussions.

Steve Carlisle, president of General Motors Southeast Asia Operations Ltd., said government assistance would allow GM to continue with the development of the plant.

In mid-August GM said the project would start operation in 2010 with a capacity of more than 100,000 units per year.
—Leigh Murray in Bangkok contributed to this article.

Write to Patricia Jiayi Ho at [e-mail] and Norihiko Shirouzu at [e-mail]