China’s GM Bailout

China has been critical to the attempts by the US government to pull the economy out of its downward spiral. The People’s Republic has accommodated America by continuing to fund the deficit with its growing purchase of Treasury debt.

To help the US Treasury to save money, one of the Chinese car companies could have purchased GM. An obscure mainland company, Sichuan Tengzhong Heavy Industrial Machinery, is buying Hummer and there have been rumors that Saab and Volvo have caught the eyes of China auto makers. The US government elected to keep GM to itself, putting $49.9 billion into the company, a sum that it is not likely to get back.

Chinese consumers may be able to do what the American market cannot–provide a huge and growing sales base for GM cars and trucks.

GM will sell about 1.6 million vehicles in China this years. Through September, its sales are higher by 56%. “Next year we will again try to grow a little faster than the market’s growth,” said Kevin Wale, president and managing director for GM’s China operations, told Reuters.  That means the company has a shot at selling two million vehicles on the mainland next year.

GM’s sales in the US fell 45% in September to 156,673. The drop was probably exacerbated by the end of the “cash for clunkers” program, but it is unlikely that GM sales will grow in the US next year, or if they do that they will not come anywhere close to pre-recession levels.

GM may sell two million vehicles in America this year. It will almost certainly sell that many in China in 2010. The bailout of GM is in the hands of the Chinese consumer now. And, he has not even been given a “cash for clunkers” incentive to help the US company out.

Douglas A. McIntyre                                                    24/7 Wall St. provides a list of today’s best market rumors