NEW YORK (TheStreet) -- General Motors (GM) - Get Report will help its Chinese partner, SAIC Motor, become a bigger player on the world stage while revamping its Chevrolet line for non-U.S. customers by investing $5 billion to jointly develop cars for emerging markets such as Brazil, India and Mexico.
GM said the investment will be spread over the next several years to design and manufacture a Chevrolet family of vehicles, with the first models to go on sale in 2019. Until now, GM has had mixed success selling vehicles overseas to buyers in less developed countries who may have never owned a car.
Vehicles worldwide are undergoing tremendous technological advancement in terms of connectivity, safety systems and environmental controls, driven by customer expectations as well as by government oversight. Though GM didn't say so specifically, statements by its executives have suggested that the automaker's current offerings, once thought to be sufficient for less-affluent buyers, are falling short against the competition.
Besides overhauling its strategy for reinforcing and growing its share of the growing global vehicle market, the venture with SAIC underscores GM's rationale for spurning a tie-up proposed earlier this year by Fiat Chrysler (FCAU) - Get Report. Mary Barra, GM's chief executive, turned down FCA Chairman Sergio Marchionne on the grounds that GM had determined to pursue its own strategic direction. SAIC -- Shanghai Automotive Industry Corp. -- is a long-time GM partner in China.
GM's Chevrolet Aveo and Onix subcompacts currently on sale in emerging markets are based on architectures developed in South Korea and Europe, mainly for markets in those regions. The new vehicles are expected to sell about 2 million copies annually, or roughly a fifth of GM's current annual sales. The automaker builds vehicles today based on 14 architectures globally, a number it plans to shrink to four by 2026, which should significantly reduce cost and complexity.
Dan Ammann, GM's president, announced the initiative in Brazil earlier this week. He said there was no line of vehicles currently being sold in emerging markets that served as a benchmark for the proposed models. New GM models will range in size from compacts to sport-utility vehicles.
"It starts with what we call a profound understanding of the customer," Ammann said. "This is really about meeting the rapidly changing needs in these markets." GM and SAIC will study the tastes and needs of consumers in the target countries in order to develop suitable vehicles, he said.
GM shares rose more than 1% on Tuesday following Ammann's announcement. The automaker said it will double its investment in Brazil to $3.8 billion through 2018 for the purpose of introducing new technologies rather than increasing production capacity. In the past year, GM shares have fallen 10.6% in value, while the Dow Jones Industrial Average has risen 4%.
GM recently decided to stop vehicle production in Indonesia and Thailand, switching to a supply arrangement from factories in China and India. Ammann said the process of consolidating vehicle architectures was more advanced in developed economies such as the U.S. than in the emerging world.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.