China picks European cars off scrapheap

Chinese carmakers are seeking to step into the gaps left by U.S. companies in Europe — but while acquisitions may give them access to badly-needed technical know-how, global brands and exposure to new markets, the question is whether they have learnt from past failures.

With China now the world's largest car market, it's no surprise that Chinese carmakers — which have few if any really solid brands within their home market — want to start making more of a mark.

In theory, foreign acquisitions offer a quick way to do so. Meanwhile the credit crunch has thrown world-renowned but now distressed car marques such as Volvo, Opel or Saab onto the block at what look like rock-bottom prices.

The worry is that Chinese carmakers haven't always found it plain sailing abroad. SAIC Motor Corp is still feeling the pain of buying into Ssangyong Motor Co of Korea. Ssangyong has struggled to compete as South Korea's smallest carmaker, failing to develop new models and running out of cash. A debt-for-equity swap threatens to slash the Chinese company's holding in the South Korean carmaker from just over 50 percent to around 10.

Chinese companies have had more success when they have simply acquired technology and taken it back to China. SAIC had much more success when it bought Britain's MG Rover. In that case, SAIC closed most of the UK manufacturing and used the know-how to launch a mid-range sedan called the Roewe. This has proved successful in China.

It looks as if Chinese manufacturers are trying to emulate SAIC's Rover experiment rather than its Ssangyong adventure.

Although Chinese carmakers looked at Opel, they backed away from trying to buy it outright. Geely Automotive has now stepped forward as a possible partner for Opel's new owner, Canadian car company Magna. But it looks as if its role may be more as that of a supplier of manufacturing capacity than an outright owner of the brand.

In the case of Saab, Beijing Automotive Industry Corp (BAIC) has agreed a deal with supercar manufacturer Koenigsegg to help fund its purchase of the iconic Swedish company.

BAIC is shelling out 275 million euros ($406 million) and, according to a source close to the deal, will fund future development costs at Saab. The hope is that the Chinese carmaker's involvement could dramatically increase the number of cars Saab is able to produce and sell in China, while still preserving Swedish jobs.

Most Chinese carmakers have been wary of making a major step outside their own market. Chery Automobile, Hunan Changfeng Motors Co and others have all kicked the tyres of various European or U.S. auto brands but walked away. It still seems that they are wary of trying to manage large foreign manufacturing operations — perhaps for good reason having seen how difficult it is even for indigenous managers.

The cherry picking approach — tapping into brands and technology without full ownership — probably makes more sense, especially at a time when prices are low. The key question is whether the Chinese can lift the brands they pick up off the scrapheap. BAIC will be hoping that, like Rover, Saab can find a new lease of life on the streets of Beijing.