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.

How Swedish is Saab now?

Less by the hour if there is any truth to the story in Reuters that China’s SAIC is considering funding the iconic Swedish car brand’s buy-out from GM.

The deal, announced in August, was originally supposed to be a patriotic flag-waving exercise, in which a tiny Swedish supercar maker, Koenigsegg, would “repatriate” Saab from American control. The Opelisation of the Saab range would be stopped. A new generation of quirky cars designed by Nordic designers in square specs would be manufactured at the company’s historic (and splendidly named) Trollhattan factory. Saabs would again be as Swedish as a meatball or an Ikea “Billy” bookcase.

A moving vision? Certainly. But how practical given Koenigsegg’s small size? Well, about as practical as owning an insanely fast Koenigsegg car in Sweden, where the speed limit is 60kph. Incidently Koenigsegg sells less than two dozen cars a year (although they are quite pricey), while Saab sells closer to 100,000.

Anyway, that as I say was the vision. What appears to be emerging seems more like a foreign-funded buy-out of Saab from GM. Assuming SAIC makes it, the Chinese group’s 3 billion kronor investment ($410 million) should help to unlock Swedish government support in the form of guarantees of some 400 million in European Investment Bank loans. That in turn will allow the company to fund a business plan that involves continuing to source components from GM.

And it will be interesting to see  what SAIC gets in return for any cash it puts up. The company has a fairly chequered history of investing overseas. It made a total pigs ear of its investment in Ssangyong of Korea – although its punt on MG Rover has turned out a bit better.