Chinese automakers should stay away from Volvo Cars

SHANGHAI -- Lately, rumors and some media are saying that Ford Motor has contacted some Chinese automakers for the sale of Volvo Cars.

It is hard to tell how much truth they contain. But one thing is clear: given their scant experience in operating in mature markets, Chinese automakers are far from ready to take over Volvo Cars.

Leveraging government support, China's major state-owned automakers, such as Shanghai Automotive Industry Corp. and First Automotive Works, can easily borrow from state-controlled banks to finance an acquisition of Volvo.

But if history is any guide, they should refrain from doing so.

In July 2005, Nanjing Automobile Corp., also a state-owned company, borrowed heavily from domestic banks to fund its acquisition of the historic British brand MG. The project failed and Nanjing Auto was later merged into SAIC.

Chery Automobile Co. is one of China's up and coming automakers. But it is accepting significant help from Chrysler LLC to improve its manufacturing. The partners are preparing cars for export that will be sold with a Chrysler LLC brand.

For SAIC, Ssangyong Motor Co., a Korean automaker it bought in early 2005, remains a big headache even today.

Saanyong's workers went on strike in late 2005 protesting against SAIC's plan to produce Ssangyong's cars in China. After regaining profitability in 2007, Ssangyong slid back into the red at the beginning of 2008.

SAIC, FAW and Dongfeng are all the earliest state-owned enterprises in China and they are still learning to operate as market-driven businesses.

Compared with SAIC, FAW and Dongfeng have even less experience in operating overseas, let alone managing the sophisticated operations of a global player such as Volvo Cars.

A friend of mine at SAIC scoffed at a media report claiming that Ford has talked to both SAIC and Dongfeng on the sale of Volvo Cars.

She says: "SAIC certainly won't consider buying it since we know how much hassle an overseas acquisition could create."