GM’s (GM) most valuable asset may be its operation in China. Sales at the division rose 50% in April to 151,084. The No. 1 US car company sold 173,007 light vehicles in the US last month.
China may pass the US as the world’s largest auto market this year. According to the AP, “Vehicle sales in China so far this year have outpaced those in the U.S.”
Because GM’s sales in the US and Europe, traditionally its largest and most profitable markets, have fallen off sharply and its business in Latin America is no longer making large margins, GM’s operations in China may be worth as much as the balance of the company is. That would give creditors holding $27 billion in GM paper another reason to fight the car company’s offer to exchange all of their debt for equity.
GM could offer its China operations as collateral for a significant infusion of money. That would mean the US government could significantly reduce what it will need to loan GM and the amount of equity that it is proposing to take in the company.
GM’s opportunity to buy time to rebuild in the US may simply rely on its willingness to put its China operations up as a means to raise billions of dollars. It could allow common shareholders, the UAW, and the Treasury a chance to hedge their risks.
Douglas A. McIntyre
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