General Motors Corp has held talks with China's SAIC Motor Corp about the possible sale of a share of GM's stake in their joint venture or other assets as the US automaker races to raise cash, two sources familiar with the discussions said.

 

GM approached SAIC Motor in recent weeks with an offer to sell some of its stake in their 50-50 joint-venture that builds and markets Buick, Cadillac and Chevrolet models in China, according to the sources.

 

The sources declined to be identified because they were not authorized to discuss the preliminary contacts between the two companies.

 

Such a deal would make GM a minority partner at its decade-old flagship venture in China, Shanghai General Motors Ltd, considered to be one of the remaining crown jewels in its global operations.

 

The discussions between GM and SAIC Motor are playing out against the backdrop of a push by GM to secure deep concessions from its bondholders and major union to show it can be made viable under the terms of a $13.4 billion US government bailout.

 

GM faces a deadline of next Tuesday to submit a new restructuring plan to the US government detailing the progress it has made in cutting costs and shoring up its balance sheet.

 

GM and SAIC Motor had no comment.

 

Shanghai Automotive Industry Group is the parent company of SAIC Motor, a listed unit that holds all the vehicle assembly assets of the group.

 

"It is feasible that GM could cut its stake in Shanghai GM to help raise money it needs now," said analyst John Zeng with IHS Global Insight.

 

"GM could manage to buy back the shares later if it can stave off bankruptcy, as China is one of its few bright spots in the world, if not the only one."

 

Although car sales growth in China, GM's second-largest market, has virtually ground to a halt after years of double-digit growth, analysts said figures for January suggested improving demand, especially for domestically made small cars.

 

Signs of that brighter outlook spurred Chinese auto shares on Thursday, with both SAIC Motor and FAW Xiali Automobile Co up by their 10 percent daily limit.

 

Analysts said, however, that a retreat from the China ventures by GM, which has provided key technology as well as marketing expertise, could hurt their prospects.

 

"It won't look good for SAIC if its partner is pulling back," said Zhang Xin, an analyst with Guotai Junan Securities.

 

GM under pressure

 

In addition to their passenger car tie-up, GM and SAIC have seven other joint ventures in China, including an automotive finance company modeled after GMAC and a version of GM's OnStar navigation service for the Chinese market.

 

In the early stages of the talks, GM signaled a willingness to consider selling other assets in China to SAIC, according to one of those with knowledge of the talks.

 

In July, GM had set a goal of raising up to $4 billion through asset sales, but progress on potential deals has been stalled by the global downturn in sales and tight credit.

 

Among the assets GM has been looking to sell are its Hummer SUV line, the Swedish brand Saab and a medium-duty truck business based in Flint, Michigan.

 

But a deal to sell some of GM's assets in China could upstage those deals in size and significance at a time when a collapse in US sales has driven GM to the brink of failure.

 

Although GM would be surrendering a claim on one of its most promising operations, a move to sell assets in China could also help insulate it against criticism that it was using US taxpayer funds to subsidize business overseas, a second person familiar with the talks said.

 

GM and its joint ventures in China posted 6 percent sales growth in 2008, down from almost 19 percent the previous year but far outperforming GM's sales in its slumping home market.

 

GM's US sales tumbled 23 percent in 2008, and some analysts have suggested that the automaker's uncertain financial prospects have started to weigh on its sales in China.