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General Motors gags Suzuki

Gag order: GM chairman and CEO Rick Wagoner. Digital image: Chris Harris

Questions remain unanswered following US auto giant GM’s Suzuki sell-off last week

General Motors logo16 Mar 2006

GENERAL Motors has put a lid on specific details surrounding the sale of its 17.4 per cent stake in Japanese car-maker Suzuki.

Apart from a global press release outlining the sale, Suzuki’s global operations have been told not to comment about the sale.

"What’s in the press release is the full extent of what we are allowed to say," one senior Suzuki executive told GoAuto.

The troubled US car giant will raise about $2.7 billion from the sale of a 17.4 per cent stake in Suzuki.

It is facing a continuing struggle to contain negative fallout from its financial woes, union problems in the US and talk of bankruptcy.

However, GM said in a statement that the sale would "enhance the strength of GM’s balance sheets and liquidity" during "this critical phase of our turnaround".

The sale may also pave the way for another car-maker to invest in Suzuki, which has a large share in fast-growing markets like China and India.

However, Suzuki said GM had an option over the next year to buy back its stake.

GM, which is Suzuki’s biggest shareholder, will retain a three per cent interest after the sale. Suzuki will keep its 11 per cent stake in GM Daewoo Auto and Technology in Korea.

GM chairman and CEO Rick Wagoner put a positive spin on the transaction, stating that the US car giant "has a great deal of respect and admiration for Suzuki based on our long and productive history of working together".

"Our relationship is strong, and we look forward to our continued partnership," he said.

"This transaction will allow us to preserve our business relationship, while further building up GM’s already significant liquidity position during this critical phase of our turnaround." GM has held an equity stake in Suzuki since 1981, when it purchased 5.3 per cent of the Suzuki shares outstanding. Its stake was diluted to 3.5 per cent in subsequent years, but in 1998 GM increased its holding to 10 per cent, then to more than 20 per cent in 2001.

During this time the companies were involved in various joint-venture projects in product development, advanced technology, global purchasing and supply chain management and product distribution.

Specific projects will continue, including collaboration in fuel cell and hybrid systems development, joint operation of CAMI Automotive in Canada, the manufacture of the Vitara at the joint-venture facility and the cross-supply of OEM vehicles (Suzuki distributes Korean-made GM-Daewoo vehicles in Japan, for example).

GM and Suzuki also plan to work together on a proposed new automatic transmission program.

GM has raised the possibility that instead of decreasing debt, the cash from the sale of the 92.36 million shares "could finance other growth initiatives certainly in this region and around the world".

Suzuki said it would spend up to $2.7 billion – the value of the shares to be sold by GM – in buying back the stake.

GM raised about $US700 million last autumn by disposing of a 20 per cent stake in Japan’s Fuji Heavy Industries (Subaru). Speculation is now growing that GM may sell its 7.9 per cent stake in Japan’s Isuzu Motors. However, company executives say no decision had been made.

GM is the world’s largest car-maker – producing more than nine million cars and trucks last year – and has been the global industry sales leader for 75 years.

However, in recent years it has been hit by ballooning pension costs in the US and high labour costs.

Spiralling oil prices have also pushed buyers away from large SUVs and trucks – GM’s heartland in the US – to more fuel-efficient cars, resulting in declining market share.

Last year GM reported a lost of $US8.55 billion and it has subsequently fast-tracked a turnaround strategy, slashing jobs and restructuring its pension plan in the US.

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