U.S. auto giant General Motors Corp. said on Thursday it is discussing selling its stake in its longtime Japanese partner Isuzu Motors Ltd., another step in its restructuring to cope with heavy losses.
GM’s sale of most of its stake in Japanese car maker Suzuki Motor Corp. earlier this month for much-needed cash had raised speculation of a sale of its Isuzu holdings. Last year GM sold its entire 20 percent stake in another Japanese auto maker, Fuji Heavy Industries Ltd.
The Detroit-based auto maker lost $10.6 billion in 2005 as it faced high labor and commodities costs, loss of U.S. market share to foreign rivals and sluggish sales of sport-utility vehicles — typically its largest profit generators.
“The cash which GM would receive from the transaction will be some help,” said Tatsuya Mizuno, director at Fitch Ratings.
“But the gain will be relatively small and the deal may not be good value for GM from the perspective of its strategy for the Japanese market and its truck business, as the deal will weaken the (Isuzu) relationship,” he said.
GM currently holds about 90 million shares, or 7.9 percent, in Isuzu, worth $333 million (39.2 billion yen) based on Isuzu’s closing price on Thursday.
GM and Isuzu, which first formed an equity alliance in 1971 and which supply each other with trucks, said any sale would have no effect on their business collaboration.
GM buys nearly 200 billion yen’s worth of diesel engines and other parts from Isuzu annually, and sales to GM accounted for 18 percent of Isuzu's total revenues in the year ended March 2005.
Analysts said GM could also reduce its stakes in their joint ventures in the United States and Poland. GM holds a 60 percent stake in the diesel engine ventures while Isuzu has the rest.
Trading firms may buy
GM said it is discussing a possible private transaction, without naming the buyers, but Japanese trading houses Mitsubishi Corp. and Itochu Corp. and a unit of Mizuho Financial Group said they had received requests to acquire GM's holdings in Isuzu.
The Nihon Keizai business daily said in its evening edition that Mitsubishi, which holds a 0.2 percent stake in Isuzu, and Itochu, which has 0.7 percent, will likely buy additional 3.5 percent stakes each. Mizuho, which has a 2.8 percent stake, will buy an additional 0.9 percent.
Spokesmen for Mitsubishi, Itochu and Mizuho said they were considering the GM request but nothing had been decided yet.
Mitsubishi sells Isuzu trucks in Thailand and Itochu sells them in North America. They also own preferred shares in Isuzu.
Fitch’s Mizuno said Isuzu will need to seek another partner among auto makers to fend off competition.
“To maintain strong presence in the longer run, Isuzu has to form a solid alliance with a strategic partner to work together in technology, procurement and research and development.”
Isuzu's advanced diesel technology and market presence in Japan could attract some domestic or foreign firms, he added.
World No.2 truck maker Volvo AB said last week it had bought a 13 percent stake in Nissan Diesel Motor Co. for about $195 million to strengthen its Asian operations.
Isuzu agrees to discuss sale
Isuzu said it has agreed to discuss the sale of GM's stake as it understands GM's need to improve its balance and liquidity.
Shares in Isuzu rose 2.35 percent to 436 yen after the news, which was first reported in the Nihon Keizai's morning edition.
The news generated optimism that Isuzu would be better off after cutting its ties with the struggling auto maker, said Ken Masuda, senior dealer in equities at Shinko Securities.
“You have to think of this as a plus ... General Motors is not doing well at the moment,” he said.
Yoshihisa Okamoto, Senior Vice President, Fuji Investment Management said the shares were boosted also by expectations for further reorganization in the industry.
Backed by earnings recovery in the recent years, Isuzu stock has risen nearly 12-fold since December 2002 when GM injected 10 billion yen into Isuzu to aid the Japanese firm's restructuring.