What happened to China buying all those foreign car companies?

For a year, most large Chinese car companies were rumored to have their eyes on foreign car companies. None of these marriages have been consummated. Why?

A year ago, the 21st Century Business Herald reported that SAIC might buy GM and Dongfeng might buy Chrysler. I was the first to break the story in the USA, where it created quite a ruckus. Sadly, the story was not true. Months later, GM and Chrysler went bankrupt. They became a ward of the US government. Chrysler was pretty much given away to Fiat. GM was trimmed down to the barest minimum and is still owned by the US government.

Following this, stories of Chinese car companies buying US car companies became a regular staple. Up to now, it is mostly talk and little action.

Several Chinese companies were rumored to be buying Ford’s Volvo. Geely was rumored for a long time to be a serious suitor for the Swedish brand. Things became quiet regarding Geely and Volvo recently, so quiet, that an American group known as the Crown consortium, led by Ford director Michael Dingman and former Ford and Chrysler executive Shamel Rushwin, were reported to be making a play for the Swedish marquee, for less that the $2.5b Geely was supposedly ready to pay. According to the Wall Street Journal, SAIC was also interested in buying Volvo. Nothing materialized.

Whenever a Western car company was up for sale, a Chinese car company was supposedly interested. BAIC was reported to be a contender for Opel. BAIC’s offer was supposedly the best of all offers made for Opel. But nothing ever came of it. (BAIC and other Chinese companies may still have a chance to bid for Opel. The deal with Magna hasn’t been signed yet, is delayed again and again. Now, the EU Commission is making noises that the bidding process should be re-opened.)

Saab was rumored to be coveted by Geely and Dongfeng. Nothing materialized. Saab was finally bought by a small boutique car company in Sweden, Koenigsegg. Finally, a Chinese company came close to the deal: BAIC signed a letter of intent to become a non-controlling minority shareholder in the Koenigsegg-Saab venture. Even that deal is not closed yet. The European Investment Bank will decide next week on a 400 million-euro ($598 million) loan request from Saab Automobile that is key to the transaction. Sweden’s government must agree to guarantee the credit, and the European Commission must also rule that the loan doesn't hinder competition by constituting improper state support. The EU Commission is very critical of government support, see the story above about Opel. Some say, the Saab-Koenigsegg-BAIC deal may be slipping away.

What’s left? Ah, yes, the old standby, Tengzhong and Hummer. Not necessarily an earthshaking deal as far as car companies go. Even that deal is not closed yet. My Gasgoo columnist colleague, Klaus Paur, was for a long time opposed to any purchases of any western car companies by any Chinese car companies. Even Paur now recommends that the deal should be approved. The trouble is, China's commerce ministry has not yet received an application. "We know no details about Tengzhong's overseas purchase agreement," said a ministry spokesman last week. No application, no approval.

Does the only real buying of foreign automotive assets by Chinese car companies come down to the purchase of a down-and-out British delivery van company, that hasn’t built any delivery vans for 10 months? Come to think of it, LDV doesn’t go to a car company, but an engineering firm, Eco Concepts. Supposedly with the backing of SAIC. Supposedly.

Why so much talk and so little action? There are people who claim that these bids are big PR maneuvers, aimed to get the names of Chinese car companies into the press. If that’s true, then it was successful. Others say, these rumors are the product of investment bankers who want to drum up interest for distressed car assets.

Then there are others, yours truly included, that say that Chinese car companies better get with the program and start seriously buying while prices are low and sellers are getting increasingly desperate.

China has a booming car market, the biggest of the world. China will sell more than twelve million vehicles this year – at home. China’s car exports on the other hand, of which the world is dead afraid, are a joke: China exported a trifling 190,000 vehicles in the first seven months of this year, down 58 percent from 2008. Adding insult to ingrained rivalry,India out-exported China in the first half of 2009.

Let’s face it: The world isn’t necessarily clamoring to buy Chinese branded cars. Even in China, foreign brands such as Volkswagen or Buick are much more popular than homegrowns. Building a new car brand takes time and money, building a car brand in the saturated markets of the West takes a lot of time and a lot of money. Just ask Toyota or Hyundai how long it took them to gain respect and market share abroad. Buying an already established western brand while it is cheap or practically given away is a much more cost-efficient, time-saving, and politically expedient approach.

The other alternative is to focus on the two growth markets, namely China at home and possibly neighboring India. There is a lot to be said for this strategy. After all, these markets are growing, while the Western markets are saturated and contracting. Why should China focus on Europe or America in a time when China buys nearly twice as many GM’s than the Americans?

That reminds me of when I was working for Volkswagen. There was a time when Volkswagen’s sales in the USA were at an all-time low, their customer satisfaction ratings were at the bottom of the scale. Volkswagen seriously contemplated exiting the US market and to focus on growth markets. Volkswagen did not retreat. Why? They knew that if they can’t compete in the world’s most demanding and most complicated car market, they eventually will not be able to compete in the world. They knew that to keep up with the demands for safety, emissions and driver comfort, they needed to be competitive in the USA. They stayed. Volkswagen still doesn’t play a big role in the USA. But Volkswagen grew to be the second largest car company in the world.
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About the author: Bertel Schmitt, Gasgoo's columnist, is CEO of Hong Kong based parts sourcing company Sinamotive. Before founding Sinamotive, with the assistance of U.S. venture capital, Mr. Schmitt was a marketing consultant to Volkswagen AG.