GM buys stake in Fuji
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December 10, 1999: 3:08 p.m. ET
$1.4B investment gives it 20% of Subaru maker, ups presence in Asia
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - General Motors Corp., facing declining market share at home, is buying a stake in the maker of Subaru cars and trucks, in its push for a larger share of the Asian market.
GM will pay $1.4 billion for a 20 percent stake in Fuji Heavy Industries Ltd. The deal, announced early Friday, will include collaboration in the design, development and manufacture of cars, trucks and related technology. But Fuji will remain an independent company with GM as its largest shareholder.
Negotiations on the details of GM’s investment in Fuji still are under discussion, but it should come to about 169 million shares of Fuji common stock for about 853 yen per share, GM spokesman Henry Wong said.
GM, still the No. 1 automaker in the U.S., has been suffering from declining market share, down to an historic low 26.7 percent of U.S. vehicle sales in November from 28.55 percent in November 1998. The falling share has been putting pressure on the company. It raised a series of incentives last week, including some on its hottest-selling pickup and sports utility vehicles. But when Henry Pearce, GM's vice chairman, voiced concern about the company's market share to reporters this week, he said the company's board looked at world market share, not just U.S. market share, when measuring performance.
The GM-Fuji deal was no surprise, although the price GM paid for its stake was about 40 percent greater than estimated by reports in Japan earlier in the week.

Image source: Subaru of America
GM's investment in Fuji gives it relatively low-cost access to all-wheel-drive technology used on Subaru vehicles such as this Forester L.
GM (GM) already owns 49 percent of Isuzu Motors, another Japanese automaker, and 10 percent of Suzuki Motor Corp., a Japanese maker of compact and subcompact cars. Subaru and Isuzu operate an assembly plant together in Lafayette, Ind.
Not the last alliance
GM also signed a memorandum of understanding in August to discuss an equity stake in Korean automaker Daewoo Group, although an earlier memorandum, signed in February 1998, lapsed without an agreement. GM officials said the Fuji deal will not be the last.
"The automotive world of the 21st century will be very different from the one we know today. There will be more strategic alliances and partnerships,” G. Richard Wagoner Jr., GM president and chief operating officer, said.
Fuji also announced another alliance Friday, this one with Suzuki. Each company will hold 10 billion yen worth of each other's shares, and cooperate on technology and production. Further details of that deal were not available.
Asian market poised for growth
GM, the world's largest automaker, has only about 4 percent of the vehicle market in the Asia Pacific region. It has set a goal of 10 percent market share there. And it is believed that with many Asian markets in recovery and the growth of vehicle ownership in China, the Asian auto market could grow much faster than the already hot North American market.
"GM needs to strengthen its presence in Japan. Fuji would like to boost its brand position in North America and Europe,” Takeshi Tanaka, president and chief executive of Fuji, said. "We plan to explore numerous opportunities around the world. Where there is a need, we will move aggressively together to meet it.”
GM Asian partners a good fit
GM's goals in Asia are realistic with the partnerships it is establishing, according to David Cole, director of the office for the study of automotive transportation at the University of Michigan.
"GM, by itself without a partner, it wouldn't be realistic at all,” said Cole. "But if you look at the alliances they're developing over there, it's very doable. If you put Daewoo into the picture, it gives them a tremendous set of options, a tremendous portfolio to do business in Asia.”
Cole said the problem with the Daewoo deal is the Korean company's problems with large debt levels.
"What GM is interested in is the creditors to take a haircut. They're not planning on covering the debt. They don't need it that bad,” he said. But he believes a deal eventually will be worked out.

Cole says the GM-Fuji deal makes sense for both companies, given Subaru's leadership in all-wheel-drive systems and continuously variable transmissions for small vehicles, and Subaru's relatively small position in the world market.
"To develop an all-wheel drive or transmission, you're getting into hundreds of millions, maybe a billion. To get access to the technology for $1.4 billion equity investment is really relatively inexpensive. And Fuji has been looking around for some time. As a small company, they were dangling out there. They weren't a company in distress, but they were going to need a partner at some point.”
Incentive increases concern analysts
GM raised incentives on a series of vehicles Dec. 2. It is offering interest rate support for its popular Chevrolet Silverado and GMC Sierra half-ton pickups, despite increased production and low inventories on both vehicles. It is raising cash back to customers by $250 to $1,500 on its smaller pickups, and offering $1,000 on its Chevrolet Tahoe sports utility vehicles. The Tahoe has a newly designed model hitting dealers soon.
It also announced a series of other increased incentives on sedans and coupes as well as a $500 incentive on its mid-size minivans.
"We never are looking to lead the charge on incentives,” said Gwen Knapp, a company spokeswoman. "It's an inventory regulation measure. It's pretty much the way the industry closes the year.”
But the move by the world's leading automaker to increase incentives concerned many who followed the industry, some of whom feared that it could spark an incentive war. Deutsche Banc Alex. Brown lowered its recommendation on the stock Wednesday to "market perform” from "buy,” citing the market share and incentive situation. Other analysts also voiced concern.
"It doesn't bode well for industry if No. 1 starts upping ante on discounts,” said Michael Pak, analyst with ING Barings.
GM's stock opened Friday at 72-3/4, up 1/16 from Thursday’s close, but then fell to 71, down 1-11/16, or 2.3 percent, in mid-afternoon trading.
Fuj's shares closed Friday in Tokyo at 868 yen, down 10 yen.
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