Could a Chinese auto manufacturer buy GM?
It could happen, and here are some ways to play it:
Making my recommendation to buy the General Motors debt in the April issue of the Forbes/Lehmann Income Securities Investor and subsequently in my Forbes column was one of the easiest calls I've ever made. Here you had a company being threatened with a downgrade to BB yielding more than 10% when the average bond rated BB was yielding 6.79% and the average preferred 7.29%. As I indicated then, General Motors (nyse: GM - news - people ) was suffering from a lack of buyers in what is a trillion-dollar high-yield market faced with having to absorb up to $300 billion of new supply. The absorption of so much debt was not being helped by the negative media attention, which portrayed GM as being on the road to bankruptcy.
All this changed dramatically when billionaire Kirk Kerkorian, as savvy an investor as ever lived, stepped up with a bid for GM common stock to increase his holdings to over a billion dollars. Only Warren Buffet could have created a greater stir or quicker turnaround. At 87 years of age, however, one can assume that Kerkorian is not looking for a long-term investment.
As I mentioned in my Forbes column, at a market price of half its book value, GM is an attractive takeover candidate for entities like China's biggest automobile manufacturer, the Shanghai Automotive Industry (nyse: SAIC - news - people ), which would like to become a leading exporter of cars. SAIC and GM already have a strategic joint venture which currently has a capacity of 500,000 vehicles in China per year, including autos like the Buick Regal and Chevy Sail.
Posted by: Zhang Fei 2005-06-21