China’s central government clearly isn’t enthralled with Tengzhong getting intimate with Hummer. If you want to get a feel for how they really feel, all you need to do is read Xinhua, their official news agency. Xinhua speaks for China’s government—with plausible deniability if something goes wrong. As far as Hummer goes, every single day Xinhua has sown FUD (fear, uncertainty, doubt) about the marriage.

Today’s Hummer Deathwatch, Xinhua style, opens as follows:

“General Motor’s Hummer is considered as an exaggerated and extreme example of a disregard for the environment and there are significant brand negatives for the Chinese company Tengzhong to buy it.”

Xinhua carefully selected “a U.S. financial expert” to say that: one Richard L. Wottrich, managing director, international, at Dresner Partners, an investment banking firm based in Chicago.

In case you’ve never heard of Wottrich (neither have I), Xinhua furnishes a flattering feature list of his achievements: “Wottrich has initiated merger and acquisition transactions in China and has delivered speeches at several influential events such as “2005 Summit of CEOs and Career Managers of Chinese and Foreign Enterprises” in Beijing and the Greater China Business Conference at the Kellogg School of Management, Northwestern University, in 2008.”

After establishing his bonafides, they let Wottrich go postal on the presumptuous planned amalgamation:

“The vehicle is too big, uses too much gas, and is viewed as a toy for the rich. These are rather significant brand negatives for the Chinese company Tengzhong to consider.”

“Hummer is a difficult brand name to reconcile with current global conditions and political thought.”

“The brand is based upon the High Mobility Multipurpose Wheeled Vehicle (HMMWV or Humvee), a military 4WD motor vehicle manufactured by AM General. It is an essential part of the landscape of war in Iraq and Afghanistan.”

“The final consideration is brand name development and new products. What market will Tengzhong focus on? The mature and stable Western markets have the negative views of Hummer mentioned. If they target developing countries, this becomes a symbol of wealth obtainable by few.”

In other words: Bu hao, no good. Give up, already.

Just in case someone hasn’t received the message, Xinhua reminds its readers: “The Hummer and other large vehicles have been a drag on the U.S. auto industry since fuel prices spiked in 2008 and the recession deepened. GM said it sold 5,013 Hummers worldwide in the first quarter, down 62 percent from the 13,050 that it sold in the same period of the previous year.”

What if someone doesn’t put credence in Wottrich? In a separate article, the second so far today on a quiet Saturday morning in Beijing, Xinhua presents an array of Chinese experts who say the deal is a dumb idea. Their crown witness: The Hummer dealer in Tengzhong’s hometown Chengdu.

“I had never heard of the company and was surprised at the news,” said Yang Cheng, general manager of Sanhe Hummer Sales Center, one of the two branches that sold Hummer in Chengdu, capital of Sichuan Province.

“Producing gas-guzzling brands is against the current trend toward energy-saving and emission-reduction,” Zuo Xiaolei, an economist with China Galaxy Securities told Xinhua Saturday. “Meanwhile, the company has no experience in producing passenger vehicles, adding difficulties for the company to manage the brand.”

“Wang Yukun, a researcher with the Yangtze River Delta Research Institute under Beijing-based Tsinghua University, said it would be hard for the buyer to “digest” Hummer.”

“Tengzhong plans to maintain the current management team for Hummer and develop more energy-efficient models, but it is just their fantasies. If the current team could prevent the brand from slumping in any way, they would have done so before,” Wang told Xinhua.

“It’s difficult for a company to digest something dumped by others,” Wang said.

That’s as close to “Tengzhong eats what GM secrets” as you will ever get in the officious Xinhua. Someone—or many—in Beijing are clearly displeased with Tengzhong. My prediction: The formerly unknown Tengzhong company managed to receive buzz from Hummer and can now go back to making cement mixers and bridge pontoons. With so much flak from Beijing, this deal will go down in flames.

Government Motors is launching a barrage of press releases in an attempt to shock and awe all naysayers. All is fine with its Asian operations, they are insulated from the bankruptcy of the mother ship, it’s great business as usual. As far as China (GM’s second largest market behind the United States) is concerned, business never has been better! It seems everybody is counting on the Chinese consumer to bail out the US government’s bailout.

GM China’s Prez, Kevin Wale, opened the salvo in China Daily: “General Motors Corp.’s fast-growing China operation will be unaffected by the parent company’s bankruptcy. Plans to open a new factory within five years will not change, even as GM closes US facilities.” Gettelfinger will be thrilled.

And, yes, “GM China is sticking with a five-year plan to double annual sales to 2 million units and roll out 30 new or updated models.”

More good news: Yesterday, GM China released their May sales—way before anybody else in China. Sales rose 50 percent over May 2008, Gasgoo reports. The Buick New Excelle, based on the Opel Astra Delta II platform, is selling especially well. So is the Buick New Regal, based on the Opel Insignia. And the Chevy Cruze, also a Delta II descendant.

Wale isn’t worried by the fact that many of his moving models are based on Opel technology: “The technology for the vehicles we sell is held by General Motors, and I don’t see any implications from the new structure in Europe.” Magna and its Russian partners may have a different opinion.

The Dept. of The Treasury even denied that there might be a secret deal to keep Opel and Magna out of the U.S.A. and China. “Newspaper accounts that Treasury is insisting that Opel stay out of the U.S. or Chinese markets are incorrect. The U.S. government strongly supports free markets,” Treasury spokeswoman Jenni Engebretsen said.  Treasury keeps a backdoor open: If Magna and GM cut their own deals, then that’s their own business, an unnamed Obama administration official said to Reuters. I zee nozzink, especially not the Sherman act.

GM China sent a statement to Gasgoo, claiming that “the court supervised reinvention of GM in the United States will have no substantial impact on Shanghai GM, and Shanghai GM will continue its normal business operations as usual.” The statement insists that the intellectual property rights of products produced by Shanghai GM will be included in the New GM, and that GM’s joint ventures in China are not included in the court filings. Kudos for the euphemism of the day: Court supervised reinvention. Sure beats extraordinary rendition (a.k.a. “impromptu concert”.)

Readers of Bloomberg are told that GM “did not include its international operations in a filing for bankruptcy protection.”

Readers of the Wall Street Journal receive the same good news: “It is absolutely business as usual in China,” the WSJ cites Kevin Wale. “None of General Motor’s operations outside of the U.S. are included in the Chapter 11 filing, including GM China, our joint ventures and our other China operations.”

TTAC’s B&B know better. A court document filed Monday with the United States Bankruptcy Court Southern District of New York, made available through TTAC’s resident court reporter, Justin Berkowitz, names the following Chinese companies as part of the General Motors bankruptcy: Pan Asia Technical Automotive Center Company, SAIC GM Wuling Automobile Ltd., Shanghai General Motors Corporation, Shanghai GM, Shanghai GM (Shenyeng) Norsom Motors Co. Ltd., Shanghai GM Dongyue Motors Co. Ltd., and Shanghai GM Dongyue Powertrain. That’s only a partial list of GM’s international operations named in the filing.

The list presented to the court was obviously done with care, and wasn’t just a cut & pastie from the latest Sarbanes-Oxley filing. GM Europe, handed over into the care of a trustee appointed by the German government, isn’t there. Also missing is GM’s Australian unit, GM Holden Ltd. Holden “expects to be part of the new GM and will not cut jobs,” Holden’s managing director Mark Reuss said to Bloomberg. Whether the listed companies will finally end up in a “Good GM” or “Bad GM” doesn’t change the fact that they are all included in the filing.

The list of GM’s 50 largest unsecured creditors, also filed on Monday, reads like a Who’s Who of the parts business. Delphi is owed $111 million. Bosch is owed $66 million. Lear Corp. is owed $44 million. Renco Group is owed $37 million. Johnson Controls is owed $32 million. Denso is owed $29 million. TRW is owed $27 million. Magna is owed $26 million. American Axle is owed $26 million. Continental AG is owed $15 million. Tenneco is owed $15 million. Yazaki is owed $14 million. International Components Corp. is owed $12 million. Visteon is owed $10 million. And the list goes on. No wonder that companies on that list have already declared bankruptcy themselves, or are listed as bankruptcy risks. Thousands of smaller suppliers are affected. According to CNN Money, “a vast network of companies outside Detroit are bracing for impact. Suppliers to the auto goliaths are going to feel the aftershocks of the industry’s titanic shift.”

Business as usual? Viewed through the eyes of GM, it probably is business as usual.

US SecTreas Timothy Geithner quickly got out of DC for the Monday curtain call of the artist now known as Government Motors. Geithner went as far as Beijing to distance himself from the performance. Keeping a distance didn’t mean keeping his mouth shut. From Chrysler and GM, “we want a quick, clean exit as soon as conditions permit,” Geithner told students at Peking University in Beijing. Reuters took notes. “We’re very optimistic these firms will emerge from restructuring without further government assistance.” Strangely, everybody shares his optimism . . .

Back home, Geithner’s subalterns at the Presidential Task Force on Automobiles (PTFOA) are digging in for the long haul. To paraphrase Richard Nixon, we’ll have the twenty-five member team (plus assistants) to kick around some more.

It’s not like they need the money; Bloomberg reports that PTFOA bureaucrat-in-chief Steve Rattner is worth some $188m. He’s in it to win it—now that he’s divested shares in Cerberus (Chrysler’s soon-to-ex-owners) and “sold guarantees of as much as $15 million on a credit-default swaps index tied to the secured debt of 100 companies, including General Motors Corp.’s senior secured loans, the filing shows.”

Reuters reports Steve-O will continue to earn his bankruptcy proof government pension “even if General Motors Corp and Chrysler LLC emerge swiftly from bankruptcy this summer.” That’s because “the Obama administration’s autos task force will stay in business—shifting to an investment manager role.” According to the principles laid out in Washington, the US government “will seek to dispose of its ownership stakes as soon as practicable.”

Define “practicable?”

Someone should. Not that the Obama administration isn’t trying. The Washington Post reports that following that infusion, the US Treasury “does not believe or anticipate that any additional assistance to GM will be required,” a senior administration official said Sunday night, calling the restructuring a ‘permanent’ solution.” Final answer?

According to Reuters, one of Geithners officials “declined to project when this would be or how much of the $50 billion in aid extended to GM will be recouped. The restructuring plan was aimed at ‘maximizing taxpayer proceeds’ by ensuring that GM could be profitable even if conditions in the industry remain difficult for years to come.”

Not realizing how deep the foot was in his mouth, Geithner went on to reassure the students and the Chinese government that China’s huge holdings of dollar assets are safe and that he has deep faith in a strong US currency.

“Chinese assets are very safe,” declared Geithner at the Beijing University, where he studied Chinese in 1982.

This time, loud laughter erupted from the student audience. They clearly didn’t buy this one. On the first day of Geithner’s visit to China, China Daily reported that seventeen out of 23 economists in China said they deemed the country’s vast holdings of US bonds “risky.” China Daily is a well-written, and occasionally entertaining government publication. Ever so politely, Geithner is being told that the Chinese government doesn’t share his convictions.

The market didn’t buy Geithner’s faith-based valuations either. The same day he praised the strong dollar in Beijing, the greenback plummeted against world currencies. At the time of this typing, one Euro buys $1.42. The dollar hasn’t been so cheap since last December.

As China sees its dollars getting ravaged by consumption with a different meaning (pulmonary phthisis), Geithner treaded carefully when it came to the Chinese currency. All he said was that it would be nice if China would “continue progress toward a more flexible exchange rate regime.” That remark was ignored as politely as it was made.

Meanwhile, Geithner tries not to be reminded of his major achievement when he had studied in Beijing. He helped organize an international badminton league among his fellow Beijing students, which included participants from Sierra Leone, Iran and North Korea, as the website of his alma mater can’t help to note.

Whether or not Chrysler and GM’s future (or lack thereof) forms a lasting part of Tim Geithner’s legacy is not in doubt. The question: what sort of reputation will be “enjoy?” Will his intervention make things better or worse? The early signals aren’t good. But they never are. And May’s American sales results are headed our way on the same day as GM’s filing. As the old joke goes, it’s always darkest before total black.

Then again, as Market Watch reminds us, “even if all 120,000 GM workers lost their jobs tomorrow, it’d be less than the daily average of 156,000 jobs that have been lost over the past three months.”

Further, “The lost production at Chrysler and GM will reduce gross domestic product by about 0.7 percentage points in the second quarter, not a ‘dramatic’ effect, said Abiel Reinhart, an economist for JPMorgan Chase Bank. Falling auto production cut 1.4 percentage points in the first quarter.'”

So, no matter what happens at Chrysler or GM, Geithner can always claim that a sinking tide lowers all boats. How great is that?

A few weeks of vacation from the blogosphere’s non-stop news cycle can leave a blogger feeling a bit behind the times. Two weeks is an eternity in internet time, but stepping away from the barrage of news, spin, hype and hysteria is good for the sense of perspective. Especially if the down time is spent exploring countries on the local typical family vehicle, complete with two wheels, four speeds and about 100ccs of thundering power. Beyond the sheer novelty of seeing entire families commuting on a moped (“Daddy, Nguyen isn’t staying on his side of the pillion seat”), travel in the developing world shows how insulated America is from the transportation realities of the rest of the world. If the $1,000 entry to the world of moped ownership is a major (if attainable) hurdle for workaday Vietnamese, even sub-$10K vehicles face what a GM sales release might call “a challenging sales environment.” Try to explain the “green premium” for hybrids and plug-in vehicles to an auto-aspirational third-worlder, and watch as the idea of paying more for less room and power draws only puzzled bemusement. Hair shirts, it appears, are strictly a fad for the western and wealthy. Case in point: the world’s first plug-in hybrid, the Chinese BYD F3DM.

BYD’s Corolla-aping PHEV raised more than a few eyebrows (many skeptical) when specs and concepts first appeared. Warren Buffet’s hefty investment into the cell phone battery maker quieted the skeptics and gave green-hued futurists a license to thrill. A 60-mile plug-in range, a multiple-mode hybrid system and a price tag under $25K had American hypermilers factoring in local tax credits and greengasming at the fantasy of it all. But in the world’s new largest market for automobiles, even $20K is a huge amount of money. And it turns out that one society’s eco-fantasy is another society’s overpriced, overly-complex answer to a question nobody has asked.

Xinhua reports (yes, nearly a week ago) that BYD’s F3DM has utterly failed to attract Chinese consumers; the firm has sold only 80 models since it went on sale in December. Apparently 20 of those were bought by the city of Shenzhen (think China’s Detroit) with the rest going to the local branch of China Construction Branch. In fact, BYD never even attempted to target private consumers with the model, despite the fact that an F3DM costs 30-40 percent less than a Toyota Prius (which only sold about 3,500 units in China between 2006 and 2008). Even the government isn’t rushing to put its citizens in the alleged volks-hybrid, offering a $7K hybrid subsidy to fleet buyers only.

Even with government help bringing the F3DM’s price under $20K, fleet sales aren’t as strong as BYD had hoped. Shenzen’s plan to buy more for the city’s taxi fleet is on hold as even BYD officials admit that the price needs to come down. BYD’s CEO Wang Chuanfu says that increasing production volume could help bring the F3DM’s price to a more-realistic $15K, but without institutions stepping up to prime the sales pump, the promise of a sub-$10K PHEV (after government subsidies)—and mass market sales—remain out of reach.

And even though the F3DM isn’t dependent on a charging-station infrastructure, price isn’t the only concern keeping buyers away. BYD faces an image challenge having never made anything more car-like than a laptop battery just a few years ago, and even its much-vaunted battery technology seems to struggle to meet on-paper performance numbers. According to Xinhua (hardly bomb-throwers when it comes to Chinese businesses), the 60-mile electric range is only attainable driving at a steady 30 mph. And recharging from a home wall socket takes nine hours.

But these tradeoffs and the correlating plug-in efficiency rewards only have meaning in the context of price, and here the lesson for Chevy’s Volt are plain to see. GM’s $40K profitless wonder defies fiscal logic on a comparable scale, offering only the most image-conscious greenies a value proposition worth even including. Like the F3DM, the Volt’s target audience (if not consumer) is the government, and the same increased volume-decreased price mirage lingers on the horizon. But unlike China (BYD expects its sales to double for the second year in a row, hitting 400,000 units), America’s demand for automobiles is in double-digit decline. And that includes demand for the much cheaper hybrids that are already available in the marketplace.

But we don’t have theorize about private PHEV sales levels for much longer. Shenzhen rolled out hybrid subsidies for private consumers this month which would cut the price of an F3DM in half, to about $10K. This coincides with a BYD plan to launch “a mass marketing excercise to promote the car to private buyers.” But if the car-crazed, yet pragmatic Chinese do start buying the F3DM, it will be at half the original MSRP, a feat that GM can’t hope to pull off with its Volt. Unless they just slap in powertrains from BYD, which is hedging its consumer-market gamble by offering to license technology to Western firms. In any case, BYD’s consumer sales push will give us some idea of private PHEV demand (and its required stimulus) by the time the Volt launches. Sales trends are easier to follow when they start at 80 units per quarter.

Yesterday, we relayed a Reuters report that SAIC might buy out the Chinese part of GM, that GM might take the money and bail. Today, true to form, the denials arrived. Again according to Reuters, GM says they have no plan to sell shares in its joint venture SAIC. This according to Henry Wong, a spokesman for General Motors China. Reuters is positive that GM held talks with SAIC Motor about selling part of its 50 percent stake in the joint venture, or other assets.  As if on cue, GM’s plan to enter a joint venture with SAIC’s competitor FAW received new traction today. The plan had been on hold for a while.

In the meantime, the speed dating game between Chinese companies and desperate Detroit companies who want to swap their corporate children for cash continues. Today on the radar screen, again: Volvo.  Reuters has picked up indications that Chinese car maker Chery Automobile has held talks with several European auto brands, including Ford’s Volvo, and is interested in an acquisition. What is interesting is that Gasgoo didn’t simply reprint the Reuters report.

They added their own story, in which they quoted the man himself, Yin Tongyao, CEO of Chery as saying Chery would not rule out the possibility of buying a troubled European auto brand, and that “Volvo is believed to be one of the choices.” Now that’s something else.

Gasgoo added that Chery received a 10 billion yuan ($1.47b) loan to fund its global growth from Export-Import Bank of China last December. “We were also granted the flexibility of a credit line by the bank,” Yin added. Knowing that Gasgoo is owned by Chery is adding extra credibility to that story.

“Volvo is the most solid brand compared with other brands the Detroit automakers have put up for sale,” said Yankun Hou, industry analyst with Nomura International. “It could be a big help for Chinese automakers who lack core technology but seek to climb up the ladder.”

As for Chery’s credit line, Nomura’s Hou said: “I think Chery is able to get more money if it will indeed go ahead with a bid for Volvo.”

Chery is one of China’s most aggressive exporters. They have sold their self-developed cars to more than 50 countries, mostly in the developing world. Chery’s been seeking to tap mature markets. An established brand, especially one with a strong safety cachet, might perform miracles on Chinese offerings.

According to Reuters, “the tables have turned for Detroit’s automakers.” Earlier this decade, GM, Ford (kind of), and Chrysler (haphazardly) scoured Asia for automotive bargains, capitalizing on the region’s financial crisis to snap up assets at fire-sale prices. Lately, especially GM used China’s growth machine to make their anemic numbers look good.

Now, Detroit automakers have reached out to Asian automakers to sell their unwanted and unloved brands. “They could be the buyers of last resort, the only ones left with a good bank balance, for now,” said Larry Rinek, automotive consultant at Frost & Sullivan.

“There is also a good chance the overtures will fail,” says Reuters. “The global recession, tight credit and sinking auto sales make any auto asset an extremely tough sell, and Asian automakers have also been forced to scale back production and investment.” But it doesn’t keep them from trying. According to Reuters, Ford has reached out to several Asian companies including Hyundai, SAIC, Geely and Chongqing Changan Auto, about its Volvo brand.

Executives of Kia, led by Kia President Eui-sun Chung, have had discussions with GM over the Saab premium brand.

Last year, Chrysler talked to companies including Renault-Nissan and Hyundai about its Jeep brand or other assets before reaching a pending deal with Italy’s Fiat.

GM and Ford say they have had contact with potential bidders for Saab and Volvo, respectively, but have declined further comment.

In addition to Saab, GM is trying to sell its Hummer SUV line and is reviewing its Saturn brand. Chrysler claims it has three bids for its Viper sports car business.

Reuters: “The wide-ranging talks between Detroit automakers and their Asian counterparts show how the balance of financial power has shifted in the industry over the past decade.”

Things got so bad that Chinese companies may even get what they want for a price every Chinese company would love: “With private equity firms in retreat, analyst say the industry’s distress has opened the way for more transactions that could involve little or no cash,” says Reuters, reminding the world of the deal between Chrysler and Fiat.

Failed four time presidential candidate and god of all ambulance chasers Ralph Nader has found a new enemy: China. The Center for Auto Safety, founded by Ralph Nader with part of the $425K court settlement paid by GM in 1970 for invasion of his privacy, has been researching recalls of Chinese auto parts. Those recalls are now posted on the safety center’s website. The New York Times took the bait, and ran a long story under the headline “Recalls of Chinese Auto Parts Are a Mounting Concern.” If the NYT would have just taken 20 minutes of research, they would have found that they’ve been snowed.

“There are so many automotive products coming in from China that American safety officials can’t keep track of them,” Clarence Ditlow, executive director of the Center for Auto Safety, told the Times. Opening salvo, five miles off target. The U.S. Customs Service has a record of every part entering the country. American safety officials are not mandated to keep track of them. Every part of every country may freely roam the U.S. of A.

So, on it’s own, the Center for Auto Safety went to the trouble of tracking down failed Chinese products.

After an exhaustive search, Nader’s Center for Auto Safety found 24 recalls of Chinese products, listed in the National Highway Traffic Safety Administration’s (NHTSA) records for the years 2007 and 2008. The 24 incidents involve a total of 1.2m products.

The high numbers were caused by three companies.

Eagle Eyes Traffic Industrial Co., Ltd. imported 404.546 replacement headlight assemblies which  “do not contain required amber side reflectors.” Foreign Tire Sales, Inc. became infamous by importing 255k (some say 450k) Chinese tires which were in danger of tread separation. Harbor Freight Tools imported 295k fuses which took too long to blow.

Ditlow said his review convinces him that “too many Chinese companies are unfamiliar with – or don’t care about – safety standards” in the United States, and thus don’t meet them. According to Ditlow, automotive equipment made in China is less likely to comply with safety standards than the same product made in the United States. “The companies in North America know that process,” Ditlow said.

A quick analysis of the NHTSA database shows that Mr. Ditlow doesn’t know what he is talking about.

The NHTSA database lists 76,525 recalls since 1966. From 2007 to date– the period analyzed by the Center for Auto Safety– NHTSA lists 13,482 recalls. The database identifies the manufacturer or importer of the recalled product. It does not identify the country of origin.

The Center for Auto Safety found 24 products on the list made in China. That amounts to 0.18 percent. The NYT also did not find newsworthy that “China” is the only country listed on Nader’s website under “Import Recalls.” The countries of origin of the remaining 13,458 recalls remain unmentioned.

Also overlooked (and under-reported): during the same period, the database lists 419 recalls by Chrysler LLC, 678 recalls by Ford Motor Co, and a whopping 1,410 recalls by General Motors Corp.

The onus for creating a solid understanding of the safety standards sits squarely on the importer. United States federal law puts responsibility for the safety of the product on the American importer. The importer has to specify the factors that bring the product in compliance with U.S. regulations. The importer must verify that the imported part is in full compliance.

It is very easy to import auto parts to the United States and Canada. Some say, much too easy. There is no oversight. No prior verification is required by a governmental agency or authorized testing entity before the vehicle or equipment can be imported, sold or used. If reason develops to believe that a part does not meet standards, then authorities may conduct tests. If a noncompliance is found, a recall can be ordered.

The rest of the world operates on the principles established by the World Forum for Harmonization of Vehicle Regulations, a body of the United Nations. 58 countries, from Azerbaijan to New Zealand, are signatories to a common set of ECE Regulations for type approval of vehicles and components. Other countries, even if not formally participating in the agreement, recognize the ECE Regulations. They either mirror the ECE regulations content in their own national requirements, or permit the use and importation of ECE-approved vehicles or parts.

More than 120 ECE regulations cover most safety-relevant aspects. Each part or vehicle must successfully be tested as part of the type approval. The tests are performed by accredited, independent labs. Manufacturers must be audited. Production must likewise be in strict compliance with the certification. If non-compliant parts are found, the manufacturer– not the importer–  can lose the certification.

In most countries that signed the agreement, using a non-certified part or vehicle is illegal. This is one of the reasons why one hears very little noise about Chinese quality from European countries. Prodded by Detroit (and most likely the Association of Ambulance Chasers) the U.S.A. refused to join the United Nations body.

And that’s the truth.

Volvo is Latin for “I turn” (as in “revolving credit” of lore, or as in “revolver” for people who can’t get one.) Nomen est omen: Never has the word been truer than now, as the formerly glorious Swedish brand is being offered-up for a gang-bang.

From day one, TTAC chronicled the trials and tribulations of the D2.8 to sell as many brands a possible to the highest bidder. The news cycle on that is predictable. We report it. They deny it. Pom-pom waving bloggers drop their cheer-leading acoutrements for a second, wave the denials, and call us idiots.  Shortly thereafter, The Truth About Cars offered to India and China comes out, usually by way of the Indians saying that they don’t have the money, or the Chinese saying that they looked and lost interest. All while Detroit denies that anything of that nature may be going on.

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We made a huge mistake with our “SAIC may buy GM” story. We paid for our sins. The story created so much traffic that it literally melted two servers. TTAC’s China Syndrome. As you are painfully aware, TTAC was out of commission several times yesterday. A day after the story broke, the story broke our servers. Hit counters for all stories are currently SNAFU; they just gave up and went home. A huge amount of traffic keeps pouring in from China. And no wonder: a Chinese search for the same story produces 76,500 hits. If we’d run this story a few months ago, a wagon would have pulled up outside of TTAC World Headquarters, and they would have taken us away in straitjackets and a Thorazine drip in our veins. Now, a lot of people think GM is crazy for not doing the deal. A Connecticut hedge fund manager, who we reached for comment, looked at the screen, said “Ugh, the market is ugly.” When prodded to focus on GM and SAIC, he said: “If I’d be GM, I’d be in Shanghai right now, negotiating the deal. Then I would go to Congress and say: What are you going to do about it?”

Taking over GM would be just one in a long series of Chinese foreign deals. As early as 2003, Sinochem had invested $105m for the acquisition of gas assets in the United Arab Emirates. In 2004, Computer maker Lenovo bought IBM’s personal computer business for $1.75b. The Chinese consumer electronics firm TCL Corp. purchased the television business of French manufacturer Thomson SA, and with it the rights to the RCA logo. In 2005, China National Offshore Oil Company Ltd. (CNOOC) bid $18.5b, all cash, for Unocal. The deal was viewed as a threat to America’s security, and was withdrawn. Unocal settled for a $17b buyout by Chevron, in cash and shares, a good deal less than what the Chinese did bid.

In the same year, China’s appliance manufacturer Haier, assisted by private equity firms Blackstone and Bain Capital, bid $1.3b for Maytag.  Haier was after the same what SAIC would get from GM in spades: A household brand name, and a nationwide distribution network that could vastly expand its sales. The Maytag man in blue would have been a good fit, and the strategic importance of washers and dryers would have been manageable. However, political pressure did set in again, and the lonely Maytag man remained without Chinese company.

“In 2007, acquisitions in the United States by foreign ventures hit $407 billion, up 93 percent from the previous year, according to Thomson Financial. The top countries investing were Canada, Britain and Germany; the Middle East and Asia — especially China — are quickly catching up,” wrote the Wall Street Journal. Last year alone, China bought nearly $10b worth of US companies. The same year, China liked working with Blackstone so much, that they bought at $3b stake in the private equity firm. A $5b stake in Morgan Stanley followed. The buying spree was caused by the lower dollar. Since July, the dollar went sky high. But wonders of wonders, the Chinese did not adjust their currency to the higher dollar, in Yuan terms, buying American is just as cheap as it was.

Yesterday,  we discussed the huge spike of traffic with our friends at Gasgoo, in Shanghai. The same day, Gasgoo intensively grilled Philip Wylie and Joseph Gang, two leading professionals from Houlihan Lokey, U.S No. 1 restructuring investment banking firm. Said Gang: “The Chinese companies are quicker in evaluating and closing acquisitions today than they were five years ago. They have more capital from years of profitability and rapid growth in the domestic market to make foreign investments and many leading companies globalize through M&A which is a strategic priority.

“During the past one or two years, if we look at the larger deals in the automotive industry, you would find the Indian companies have been more aggressive in global auctions for controlling stakes and faster than Chinese companies. There are not many examples of Chinese companies purchasing foreign assets in the automotive industry.  The most successful cases involve Nanjing Automotive acquiring the MG Rover brand and related assets in the Europe, and Wanxiang acquiring multiple component suppliers through primarily minority purchases of distressed assets in the United States.”

“The operational challenges of managing the complexities of integrating a global business would not be materially different for any foreign companies, whether Chinese or Indian.”

China doesn’t like to be overtaken by India. Again, Chang hints what may be going down. China teams up with private equity firms, some of which it already owns: “For Chinese companies who intend to expand into international markets through M&A, it could be an alternative to team up with a private equity group for not only financing (albeit at the cost of sharing ownership), but also operations and governance support.” Translation: If a private equity firm buys out a company like Chrysler (as it happened), nobody cries about reds under beds. And it just so happens that China owns a good chunk of a private equity firm. Along with a chunk of Morgan. Along with a big chunk of the U.S. Treasury.

Today, the Straits Times reports that “China is now officially the US government’s largest foreign creditor after overtaking Japan, in a development that signals Washington’s increasing reliance on Beijing to save its economy.” According to US Treasury Department figures, China became the largest foreign holder of United States Treasuries. As of September, the U.S. Treasury owes China $585b. With GM’s market cap now standing at a pocket change rate of  $1.35b, and getting cheaper by the minute, China could buy 433 General Motors with their T bills alone.

Time for the United Auto Workers (UAW) to collect second-hand songbooks and ship ‘em over to their comrades– make that “union brothers” in China. Chinese taking our jobs? Wake up guys! Solidarity forever! The Chinese worker is taking it on the chin just like the working stiff in God’s Own Country. And let’s ignore the fact for a while that FICA, SECA, COBRA, and VEBA are not part of the Chinese language. PSA Peugeot Citroën, an affiliate of Dongfeng Motor in China, has “decided not to renew the contracts” (translation: has fired) 1000 workers on their Wuhan site, Gasgoo reports. Volkswagen, which depends on China for 15 percent of its worldwide auto sales, gave the Chinese equivalent of pink slips to 700 people at their Changchun factory. According to Chinese media reports, Ford, BMW, Chery, and untold more are busy. Busy thinning out their working masses, that is. Where did all the thousand flowers go?

Renault delayed their entry as a Chinese producer until kingdom come, or a turnaround of the world economy, whatever comes last. Even grimmer news from Chinese car dealers: 40 percent are losing money, and in a third of China’s car dealers everybody will lose their jobs, because they will close. Less jobs are yet to come.

The good new times are over in China. According to reports published by J.D. Power, the increase in auto sales has slowed down to 6.7 percent this year, as opposed to 22 percent in 2007 and 26 percent in 2006. An analyst at the usually well-informed Nomura bank in Japan sees China’s auto sales growth slowing to 3.8 percent next year, and 6.4 percent in 2010.

China’s car industry, which wanted to crank out 10m units by year’s end, recently slashed its 2008 sales targets to eight million, said Thomas Callarman, an operations management professor at the China Europe International Business School. This comes after a huge ramp-up of production in anticipation of unbridled demand. Callarman is chiding his Chinese children. “Two years ago, some of the same manufacturers were complaining they were already having over-capacity, and then they were building more capacity.”

Take that smile off your face, folks, this is serious. A concerned International Monetary Fund said that last year, China accounted for 27 percent of global economic growth. That’s more than any other nation. Hu Jintao, China’s Paramount Leader, agrees. “Steady and relatively fast growth in China is in itself an important contribution to international financial stability and world economic growth,” Hu said at the G20 meeting, pointing to China’s recent stimulus package. Even the grand Chinese stimulus package may not be so grand. Rumors of re-packaging of previously announced plans are all over the press.

The dire news even reached Europe. “We will see much, much slower growth in China,” said Ivan Hodac, himself Secretary General of the European Automobile Manufacturers Association (ACEA). In a rare case of economic insight, Hodac then prognosticated: “In an economic slowdown, automakers are typically the second sector to be hit after the construction industry, because, next to housing, cars are consumers’ most expensive purchases.” Never thought of that.

Not to be left out, Barron’s also weighs in on the issue. For some unfathomable reason, Barron’s is more concerned with ad sales of China’s internet portal Sina.com. Who’s to blame? “Autos, real estate and financial, the companies three biggest categories of advertisers, have all been hit hard in the slowdown. (If you thought China was immune, think again.)” OK, OK, we’re sinking. I mean, thinking.

As a sign that things must be as bad as can be in the Middling Kingdom, even Aljazeera finds the issue worthy of a closer look. Usually Aljazeera is an outlet for videos by bearded people living in caves in inhospitable areas of Afghanistan, and who employ pilots who can start, but not land. Now Aljazeera writes: “China’s industrial output has slipped to a seven year low as the global economic slowdown continues to batter the world’s fourth largest economy, eroding demand for Chinese exports and causing manufacturers to throttle back on production.” Their favorite video producer hasn’t claimed responsibility for that one– yet.

Even in the most poisonous flower is a little bit of honey, a possibly Chinese proverb says. After two months of decline, sales recovered slightly in October, rising 8.4 percent on-year. This only after Toyota, Volkswagen and others put piles of Yuan on the hoods of new models.

Long-term growth potential in China remains rosy. Only 20 people for every 1,000 own a car in China, compared with more than 500 per 1,000 in Europe and way more than 700 per 1,000 in the United States.  Once the Chinese can afford a ride again, they will buy. Some scholars of Milton Friedman and Darwin even think that the current “slow down now is to some extent beneficial to the industry because we’ll be taking out a lot of the inefficient capacity.” Roger that says Raymond Tsang, a partner at the consulting firm Oliver Wyman. He’s not alone in foretelling a consolidation amongst the 100 or so auto makers in China. Keep those songbooks coming!

Or not. Despite all the noise about a Chrysler – Chery hook-up, despite Chinese manufacturers' presence at the North American International Auto Show, we have yet to see a single Chinese-built (let alone designed) vehicle here in the U.S. So, are they really coming? The short answer is yes, some of them, eventually. But not for quite a while yet.

The number one reason we haven’t see Chinese (or Indian for that matter) cars on these shores: home markets. Right now, the Chinese market is growing at a rabid clip. Local automakers are more concerned with increasing production and filling newly emerging gaps and niches than sinking scarce foreign currency into expensive export drives.

Before Chinese automakers look east (or south or west), their home market must reach a saturation point– a pause that may take a decade or more to realize. Sure, they may dip their toes in low-cost developing nations, but the real action is at home. Taking their eyes off the domestic market is a one-way ticket to marginalization.

This brings us to point two: there are a LOT of Chinese automakers and just one party running the country.  

You might think this could lead to issues of favoritism, once some of the makers make the leap abroad. That ain’t the half of it. Being a single-party government does not mean that the government has only one thought process (look at Chicago). Any Chinese maker looking to dive into the U.S. market must trust that China’s government officials will go to bat for them in international trade negotiations.  At the same time, the automaker has to worry about all the officials they DON’T own cutting them off at the knees (or worse).

There’s an even bigger problem with cracking the American market: the sheer scale of the undertaking.

To capture American market share, a carmaker needs dealers, parts, lawyers (lots of lawyers), national advertising, administrative staff, buildings, food, someone to keep the U.S. government happy and God knows what else. These are huge sunk costs.

Worse, all of these capital costs, goods and services must be paid in dollars– one case where a Chinese company’s main cost advantage cuts back at them.  Toyota and Nissan took 10 years to crack the American market. Hyundai took about seven to eight years to gain a toehold. And those are the “successes.” The list of car companies who failed in the American car market is long and illustrious, including Fiat, Peugeot, TVR and many more.  

Of course the Chinese could get a partner. After all, there are plenty of “joint” Chinese/foreign companies in their home market (and a few pure Chinese ones). And yet none have brought a Chinese-made vehicle stateside.

Again, their recalcitrance may be a matter of rational economics (make money in the booming market, don’t branch out). It may also represent a lack of trust re: reliability/build quality of Chinese-made vehicles. The dearth may also reflect a desire by Chinese companies not to give their “partners” leverage– in case they try to “nationalize” the subsidiaries.

But the biggest inhibition is history. Emigrating as a “captive” import has never been a path to American manufacturing glory. Isuzu just left, Suzuki hasn’t yet (but no one can really tell), Renault/AMC didn’t exactly set the world on fire. “Going it alone” would be a dangerous path for a Chinese automaker, but it at least offers the chance of success. The major players make lousy pimps.

Buying out an unsuccessful U.S. dealer network would seem to be the quick way around many of these problems. The problem here is with what’s available, or likely to become available soon.  Isuzu’s dealer network was nothing to write home about: sparse, truck-centered and closely tied to GM. On the other hand, if Chrysler should go on the block, it would be if anything, worse.

The first problem is scale. There are far too many Chrysler dealers right now (it’s one of the reasons they’re in so much trouble). As they stand, none of the Chinese automakers could fill a supply channel larger than Honda’s (with two to three times the dealers). Also, any procedure that sees Chrysler go on the block is likely to void most of the dealer contracts. “Chery”-picking may be possible once the dust settles. But in that case, there’s little difference from starting an all-new network (certainly not in terms of cost).    

All that said, the Chinese may still venture stateside. Believe it or not, failure will signal their arrival. Sooner or later, the Chinese market will stabilize—or tank (saturation, outside economic factors, government instability). Once the domestic market cools off, an established Chinese domestic car company or three will fail. Some of the survivors will merge. Others will look overseas for their survival. Then, the Chinese automakers will finally arrive in America, in force. 

I once worked for a colonel who'd address all obstacles by saying "you can solve any problem if you throw enough money at it." While our budget officer would have to breathe into a paper bag for a half hour afterwards, the colonel always managed to squeeze whatever was needed to resolve the crisis du jour from the budget– and solve the problem. Automakers native to the People's Republic of China (PRC) must have bugged his office; they've adopted the exact same philosophy.  

Successfully implementing the "I'll buy what I need" strategy requires two things: 1) money and 2) knowing where to spend it. The Chinese automakers certainly meet criterion number one. The PRC is now the world's second largest auto market; auto sales are booming. The Chinese law requiring all foreign automakers to buddy-up with a domestic partner has delivered unto them an enormous financial windfall.

Criterion two– locating mission critical knowledge and/or technology– is a no-brainer. While there have been auto factories in the PRC since the mid ‘50s, the Chinese auto industry discovered the technological benefits of the aforementioned joint ventures (JV) since A Flock of Seagulls first flew. For the last thirty years, Western JVs have been flooding the PRC with new automotive designs, products and processes. 

Initially, these JV partners used Chinese labor to assemble automobiles already in production elsewhere. The Chinese partners learned how to bolt together a car, but not much more. By the 1990s and early 2000s, the foreign partners had started designing models specifically for Chinese consumption, retooling their plants for full-scale manufacturing.

At this point, several "independent" Chinese auto manufacturers (i.e. companies not enmeshed in joint ventures) began leveraging their newfound carmaking skills to send in the clones: selling exact replicas of other manufacturer's models built for Chinese consumers. 

Blinded by golden goosehood, stymied by laughable and unenforced Chinese copyright and trademark laws, GM, VW, Ford and others turned a blind eye to this sincerely flattering fraternal competition. Western automakers wrote it off as the cost of doing business in a military dictatorship. Besides, in China's burgeoning automotive market, there was– and is– plenty of pie for everyone! Of course, Chinese manufacturers had bigger plans…

For the last decade of so, Chinese automakers have started eying foreign markets. As they dipped their entrepreneurial toes into Western climes, they realized they lacked competitive cars, and the engineering expertise to design them. Disastrous European crash testing literally drove the point home.

So Chinese automakers have started throwing money at European and North American automotive companies. Michael Laske, president of Austrian-based AVL China, says "The Chinese fundamentally lack products and knowledge, but they need to get into the market very quickly." And so AVL is banking big bucks, designing an entire engine line from the ground up to pop China's Chery.

Companies selling world class technology in so-called mature markets are falling all over themselves in their rush to cater to China's hunger for the best of the best. The list of successful sellers includes BorgWarner (turbochargers, clutches, transmissions), Sweden's Autoliv (safety systems), Austria's Magna Steyr (marketing strategy, legal requirements), Robert Bosch (diesel technology),  Italdesign-Giugiaro and Pininfarina (design assistance) and A.T. Kearney (management consultants). 

The joint venture partners are infusing their Chinese partners/competitors with cutting edge technology. GM has an engineering and design center in Shanghai, soon to be joined by a hybrid research center. To provide Chrysler with a small car for the U.S. market, Chrysler's engineers are tweaking every aspect of Chery's operations. So what happens next, once this technology transfer is bang up-to-date?

China's domestic automakers will use their imported expertise to export cars abroad. Chery is already selling cars in Mexico; they've declared their intention to enter the U.S. market in the next two to three years. Chinese automakers will be out in force at this year's North American International Auto Show.

To further the cause of global export, the Chinese government is pushing their domestic auto makers to merge into a "Big Three" and a "Mini Three." Given the government's protectionist views, once the mergers and reorganizations are over, GM, VW, Toyota et al will find themselves out in the cold.

Western manufacturers seem blissfully unaware of their own usurpation. They keep pouring money and engineering talent into China– even as the Chinese manufacturers are taking the first steps toward merging into megacompanies. Once again, western car companies are so blinded by the money they're making that they can't see the dangers lurking beyond the next quarter's bottom line. 

But hey, that's the way the fortune cookie crumbles. If we don't do it, someone else will. Make hay while the sun shines. Pump and dump cuts both ways. That kind of thing. But any automaker that doesn't see China as a short term play, that stakes its long term financial future on the PRC, is headed for a rude awakening. Sooner rather than later.

By law, foreign automakers seeking a foothold in China must form joint ventures (JVs) with domestic "partners." As we've outlined before , there's an immediate downside: China's scant regard for intellectual property rights (IPR). For example, GM found itself suing Chinese automaker Chery (whose name middle-finger salutes Chevy) over the QQ, a blatant copy of the Daewoo Matiz. The case was settled out of court, but the issue of IPR remains unresolved. And now that Chinese automakers are consolidating and striking out on their own, what's going to happen their foreign partners and their IPR? What do you think?

China's three largest automakers are Shanghai Automotive Industry Corporation (SAIC), First Automobile Works (FAW) and Dongfeng. SAIC currently partners with General Motors and VW. FAW is hooked-up with Toyota, VW and Mazda. And Dongfeng works with PSA Peugot Citroën, Honda, Nissan-Renault and Kia.

China's Big Three own almost 50 percent of the domestic auto market. All three have announced plans to develop "house" brands with independent intellectual property rights. As Chinadaily.com puts it, "After churning out Buicks, Passats and other foreign models in tie-ups with global auto giants for years, many home-grown players are setting their sights on an own-brand strategy, hoping to wean themselves off reliance on foreign technology."

To that end, SAIC has budgeted $3.56b over the next five years for designing engines and complete sedans, and building a technical center. The automaker's also announced a massive bond initiative to fund development of their new cars. SAIC is looking to build factories capable of churning out a quarter million vehicles per year.

FAW is set to invest $1.7b in new product development, production facilities and "229 key technologies" over the next eight years. And Dongfeng is spending $1.01b to develop their own brand of cars and a new assembly plant. 

SAIC has a head start on its domestic competitors. They already own the IPR for the Rover 25 and 75 models, purchased from the now-defunct British brand at the end of days. SAIC has used the technology to launch the Roewe 750 based on the (BMW developed) Rover 75. So far they've sold 8k 750s.

SAIC is also considering a merger with smaller Nanjing Auto, owner of the MG brand. Nanjing has started production at MG's former plant in the U.K.; they're setting-up a similar facility back in The People's Republic. It wouldn't be hard to use the car as an anchor for a full line up.

And it won't take long for the other Chinese automakers to catch up. Dongfeng has plans to market a self-branded sedan that "imitates" the Elysee (currently manufactured by Dongfeng Peugeot Citroen Co Ltd.), starting this September. FAW is ready to begin mass production of their first independently designed sedan engine. Entire cars will follow.

Clearly, Chinese automobile manufacturers are cashing in on their crash course in auto manufacturing. They've spent the past 20 or so years studying their partners' design and engineering processes and production techniques, and establishing their own relationships with suppliers. They've also learned marketing, dealing with export and import regulations, and all the rest of the finer points of selling their products internationally.

China's automakers aren't going to want to keep sharing a large chunk of what is now the world's second largest auto market. Over the next five years China's Big Three will flex their muscle to retain their 50 percent market share. Those automakers who've entered these joint ventures will have to pay the price.

It won't be hard for the home-grown tigers to ease their partners out of the picture. Some of the models produced by the JVs are a generation removed than the same model in other markets; they need updating. Without modernization, their sales will start to drop "as core models become increasingly obsolete," warns Goldman Sachs. If the Chinese partners won't allow the foreign partners to update their designs, sales will dwindle, opening the door for the Chinese partners to introduce newer, self-branded models.  

Since Chinese law prohibits foreign auto companies from operating without a Chinese partner, this "planned obsolescence" scenario would effectively shut out the foreign automakers. Even if China's Big Three don't starve their JVs of new product, there is no doubt that the government of China will do whatever it takes to bias the domestic market in favor of home-grown automakers, including (but not limited to) punitive taxes.

Although GM and others rely on the Chinese market to help keep them afloat, there's not a lot they could do about any moves to diminish their profits. We're talking about a country run by a military dictatorship; as the current legal laxity over IPR indicates, there's no chance of legal redress.   

Meanwhile, the Chinese automobile market is expanding. The foreign players are making hay while the sun shines, even as the storm clouds gather above them.

The Chinese automotive market has over a billion potential customers. Sales growth is well into the double digits. Labor rates are a fraction of those paid in western countries, without any union rules to slow down investment or add legacy costs. An ideal place for American investment? Depends on how you look at it. The Chinese market is controlled by a totalitarian government and regulated by an Automobile Industry Policy that’s more convoluted than a bowl of shahe fen noodles. As China nips at Germany’s heels to become the world’s third-largest auto producing country, let’s take a closer look at the sleeping dragon.

There are nearly 100 automobile manufacturers in China.  Ninety-percent of the market belongs to eight state-owned companies. To meet soaring demand for new cars, these companies have partnered with automakers from around the world. These partnerships can appear strange; one Chinese company may have several partners which are competitors in the rest of the world. Here’s the list:

FAW:  Toyota/VW/Mazda
SAIC:   GM/VW
Changan:  Ford/Suzuki
Dongfeng:  PSA Peugot Citroën/Honda/Nissan-Renault/Kia
Guangzhou AIC:  Toyota/Honda
Beijing AIC:  DCX/Hyundai
Nanjing AIC:  Fiat
Brilliance:  BMW

While Chinese law prohibits any foreign company (or combination of companies) from owning more than 50% of their Chinese partner, these joint ventures have proven lucrative for all the parties involved. The Chinese companies get access to the engineering and design expertise of world-class companies, while the partners gain a quick inroad to what is arguably the hottest new car market in the world. 

As the market has grown, a number of independent (i.e. carmakers who aren’t affiliated with a foreign manufacturer) local companies have sprung up. They are usually either motorcycle manufacturers expanding into the auto market, new companies funded by capital from other industries (such as consumer electronics) or parts manufacturers that started assembling their parts into complete cars. The primary independent players are:

Southeast
Chery  
Geely
GreatWall
Zhongxin
Jianghuai
Hafei

Of these, government–owned Chery is the best known– thanks to Malcolm Bricklin’s professed intention to import cars built by Chery under his Visionary Vehicles nameplate. While Bricklin keeps pushing back the introduction of his Chinese-built products due to quality, production and safety issues (not to mention a lack of investors), he insists he will revolutionize the American market with his line of low-cost, high value vehicles. Recently, DCX has also been negotiating with Chery to produce a subcompact economy car for Chrysler.

Chery’s other claim to fame isn’t so, well, cheery. They jump-started their production capability by buying the defunct VW factory in Westmoreland, PA and relocating it to China lock, stock, and tool dies. They then procured blueprints from SEAT for a car based on the Jetta and began producing a clone. (Jetta is the biggest selling car in China and the Chinese market generates almost 20% of VW’s pre-tax profits). As you can imagine, VW was furious. They eventually accepted a financial settlement in compensation. 

To expand their operation further, Chery began hiring engineers from other companies including Daewoo. Two new models, the “Son of the Orient” and the “QQ” were suspiciously similar to Daewoo’s Magnus and Matiz (sold as the Chevrolet Spark). Chery introduced the QQ six months prior to the planned introduction of the Spark, priced $1500 lower than its automotive homonym. 

GM accused Chery of “copying and unauthorized use of GM-Daewoo’s trade secrets.” Chery countered by claiming they had developed the QQ independently and with only “inspiration” from the Matiz. Since this “inspiration” consisted of styling so similar you couldn’t tell them apart from more than 10 feet away and interchangeable body panels, doors and other parts, GM filed suit.

After three years of litigation, GM and Chery finally settled out of court. While the details of the settlement haven’t been released, GM did win one concession: Chery can’t sell cars in the US under its own name due to the similarity between “Chery” and “Chevy.”

The problems with Chery underscore the sword of Damocles hanging over foreign manufacturers operating in the Chinese market. Any time you’re dealing with companies owned by a dictatorial government, you’re at the mercy of the whims of the political leadership. The Chinese government (controlled by the army) provides all of the information used for business planning: economic growth, per capita income, projected sales, etc. They create the rules for the protection of intellectual property. They control the courts that interpret the rules on the protection of intellectual property. They control everything within the supply chain, from labor to raw materials to retail distribution to taxes to traffic laws. 

Like China’s so-called citizens, foreign auto companies are completely at the Chinese government’s mercy. If China’s rulers decide to nationalize all automotive production facilities, there’s nothing foreign automakers can do but leave. Meanwhile, they’re making hay while the sun shines, doing whatever they can to make sure their “partners” don’t pull the plug.