GM-SAIC Joint Venture Will Increase Production Capacity in China

A joint venture between General Motors (NYSE:GM) and SAIC Motor Corp. is on the threshold of receiving government approval to set up a car factory in the central Chinese city of Wuhan. Costing about 7 billion yuan ($1.1 billion), the factory will turn out 300,000 vehicles per annum, according to the Hubei Environmental Protection Bureau.

The approval comes on the heels of the  National Reform and Development Commission’s announcement on December 29 that it would thenceforth exclude vehicle manufacturing from the “encouraged” external investment list, putting an end to incentives such as waivers for import duties on auto-making equipment and tax concessions.

The new facility would ease the pressure on GM’s existing production units, which are functioning in excess of rated capacity, by increasing the existing capacity of 2 million units by 15 percent.

“GM has been running with tight capacity and the expansion will make the company even more competitive,” said Cao He, an analyst with China Minzu Securities Co. in Beijing. “To have a foothold in central China will also bring GM closer to its clients there and lower logistic costs.”

GM will also benefit by cementing its status as the leading foreign auto maker in China, and extending its lead over the competition.

Here’s how shares of GM are ending the week:

General Motors Corporation (NYSE:GM): GM shares recently traded at $25.50, down $0.24, or 0.93%. They have traded in a 52-week range of $19.00 to $36.84. Volume today was 7,291,059 shares versus a 3-month average volume of 11,250,600 shares. The company’s trailing P/E is 5.56, while trailing earnings are $4.57 per share.