Shanghai Automotive Industry Corp. (SAIC) is looking to shape India’s automotive industry the way Japan did with the U.S. SAIC is expected to begin manufacturing and selling small-size cars in India, one of the fastest growing automobile markets in the world, with the help of its foreign partner, General Motors.

Together, SAIC and GM dominate the Chinese automobile market. Initially, they had set up a 50-50 joint venture aimed at expanding in emerging Asian markets.  They will invest US$650 million in the Indian venture with the goal of selling around 225,000 cars a year. As GM currently restructures its way out of bankruptcy, it will sell a 1 percent stake in its existing Chinese venture to SAIC, giving China’s top car-maker more control. Gaining control of the Chinese venture and having equal say as GM in India offers an opportunity for SAIC to become a global player in the automotive industry, striking during one of toughest times the industry has ever seen. “India is a test case of SAIC’s ambition for overseas expansion, and it may further expand into Southeast Asia when the time is right,” said Johnny Wong, auto analyst at Yuanta in Hong Kong.

What problems lie ahead?

1. SAIC and GM will have to go up against established Indian car-makers Tata Motors and Maruti Suzuki. “The foray into India is both a challenge and opportunity,” said Liu Feng, an analyst with Southwest Securities. It is a challenge because Tata and large car-makers are also experienced in making mini vehicles. Tata dominates India’s commercial vehicle market while Maruti Suzuki is the biggest seller of passenger cars.

2. “The Indian market is an extremely good one because it is an emerging market with a lot of growth potential,” says Klaus Paur, the North Asia director for market research company TNS. Additionally, Liu said the move could help protect SAIC from a possible future slowdown in local growth rates. However, I see a fault with Liu’s statement and danger for SAIC in China.

What is the fault?

China is one of, if not, the fastest growing economies in the world. There are 300 million people in the middle class and if China doesn’t continue to help the other 1 billion climb out of poverty the country will collapse. I don’t see a slowdown in local growth rates anytime soon.

What is the danger?

As SAIC begins to focus on an overseas market they will most likely face fierce competition at home. They’ve seen vehicle sales in China soar 37.7 percent to date in 2009. They must protect their bread and butter.

Comments anyone?

Whether you agree or disagree, we’d love to know what you think. Leave your opinion, thoughts, and/or comments below. Useful links to resources providing additional insight are especially appreciated. Thanks.  =)