Commentaries

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.

Saab and Volvo – made in China?

At this rate it might not be long before Sweden’s once mighty Volvo and Saab car marques come with “Made in China” stamped on the chassis.

After failing in the auction of Opel, Beijing Automotive Industry Holding (BAIC) is set to take a minority stake in supercar maker Koenigsegg, which is bidding to take over all of GM’s Saab. Meanwhile, Geely Automotive’s parent company Geely Holding Group Co plans to bid for Ford’s Volvo.

Chinese carmakers have had mixed fortunes in their attempts to buy overseas brands. SAIC Motor Corp snapped up 51 percent of Korea’s Ssangyong Motor Co in 2004 but made a hash of running an overseas operation and was later forced to write down the investment.

SAIC had more success with the acquisition of the historic British MG Rover. In the case of Rover,  SAIC simply boxed up the machinery, stripped the plants and took all the technology back to China where it produces the cars of the same design far more cheaply. But in MG’s case, the sportscar continues to roll off the assembly line at the UK’s Longbridge plant.

Technological asset stripping rather than a commitment to build cars in Sweden is what some there fear will be in store for Volvo and Saab should the Chinese firms succeed with their bids. But analysts point out that in the case of Saab, the technology is owned by GM

Stockholm is doing all it can to avoid giving either of its iconic carmakers state financing. If it ends up giving any loan guarantees, it will also want to look very closely at the fine print to make sure it does not sign away its carmaking heritage and the jobs which go with it.

Mandy moves to hide Byers’ blushes over Rover

At the very least, it’s frightfully convenient for the Britishgovernment to call in the Serious Fraud Office to look into MG Rover, a former carmaker. Whether there’s a shocking crime or not, it suits Peter Mandelson, the Business Secretary, to organise a further delay before this gory case is finally closed.

It took BDO Stoy Hayward’s partner Gervase MacGregor 16 million pounds and four years to report on a case which looked open and shut at the time. Whatever exciting new detail he has unearthed, this attempt to smear the so-called Phoenix Four is little more than political treachery.

The Four, as John Towers and his three cronies were immediately dubbed, were a bunch of chancers who saw an opportunity. They might have genuinely believed they could make a go of a business where even BMW had failed, but few others did. BMW gifted them the company, added 427 million pounds and the (uncomfortably large) stock of unsold cars, and gratefully walked away.

The cash allowed Towers & Co to pretend that a sub-scale business, producing unattractive, high-cost models in an industry with chronic overcapacity could be made viable.  When the money ran out, five years later, the plant had to close.

On what we know so far Towers & Co, who helped themselves to over 40 million pounds during their tenture, are guilty of little more than greed. In 2000, the Trade Secretary was Stephen Byers, a man with an impressive record of errors. The Rover unions were obsessed with preserving jobs in the face of the facts, and between them and Towers, Byers was bamboozled into awarding it to the incompetents. Since little public money was involved, it looked like an easy decision.

The only alternative (barring complete closure) was put forward by Jon Moulton, who proposed selling off most of the site and continuing to make MG sports cars, the only niche of MG Rover with any value. He was swiftly tarred by the unions as an asset-stripper, and the Phoenix Four took the wheel.

The real tragedy here is not that Labour made such an obviously stupid decision, but that it blighted the lives of thousands of Rover workers. BMW’s 427 million was there to fund generous redundancy terms for them. By the time the money was needed, it was gone, and the workers were five years older, less able to find a career elsewhere. A study nearly two years on found that almost a quarter of them were not in regular employment, despite a two million pound support package from the government.