Financial crisis creates new cooperation in China

The current worldwide financial downturn generates conditions that could provide opportunities for stronger entities to consolidate the weaker ones. This has always been a global ongoing process in the auto industry. China, as an emerging market which still keeps growing, has attracted global auto giants, such as GM, Ford, and PSA, to position for a new round of growth here.

Gasgoo.com has an exclusive interview with Frank Zhou (Zhou Fangyu), associate partner at Value Partners Management Consulting to elaborate on the features of this new round of cooperation in China's auto industry. Before joining Value Partners Management Consulting, Mr Frank Zhou was Director of Business Development and Planning at General Motors China.

Gasgoo.com: Recently, many global automakers have begun to find new partners in China. For example, General Motors (GM) is talking with FAW, Daimler cooperated with Foton, PSA is trying to tie up with Hafei. What's the difference between this new round of cooperation and the previous one? For what reason does this difference happen?

Zhou: Auto industry worldwide continues to go through mergers and acquisitions and consolidation. If you look at the history of world's auto industry, you can easily see that is a never ending continuing evolution. Renault acquired Nissan, GM divested Subaru to Toyota, GM acquired Daewoo, to name but a few. This is may be something relatively new in China but in the world, this is a continuing ongoing phenomenon.

In China, because of the Chinese "Auto Policy," international companies are not allowed to operate wholly owned car manufacturing companies; therefore, they have to form "joint ventures" with Chinese auto companies. This is country-unique because of the Chinese law. Generally speaking, earlier joint ventures in China were formed because global OEMs were desperate in trying to establish their local footprint in China for the rapid growing Chinese auto market. By the early part of year 2000 (2002 or 2003), all major global OEMs have completed their mission of establishing their joint ventures in China and then positioned to grow and expand.

Gasgoo.com: What are the features of this new wave of cooperation?

Zhou: After the first round of joint venture formation which was completed in the early 2000s, any further joint venture formation, alliances or mergers & acquisitions would mainly be for the purposes of

1) finding additional synergies with current operations;

2) market entry to specific segments;

3) market expansion or other specific strategic purposes (such as leverage low cost manufacturing sources for overseas market, etc.)

Gasgoo.com: Do you think this cooperation trend will impact Chinese auto industry?

Zhou: I don't think it will have very significant but only very marginal impact on the Chinese auto industry landscape.  If you think of those that are already well established and currently dominating the industry, the major global OEMs from the US, Japan and Europe, and their joint ventures and the dominant Chinese OEMs.  The auto industry landscape in China is pretty much confirmed and will not change significantly because of the current global financial crisis.  The next major consolidation will happen only if the Chinese government removes the 50/50 restriction on the global automaker's ownership of a joint venture. When that happens, the cards will be reshuffled again.  Otherwise, nothing drastic is expected within the next 5-10 years!