We jumped on Alan Mulally last week for sitting quietly on a $2.5b offer for Volvo from the Chinese automaker, Geely. At the time we told him to take the offer and be glad of it; after all, no one else would pay that much for a brand that hasn’t made money in nearly a decade. Or would they? Of course Alan knew more than we did, and over the weekend the truth emerged: Volvo has another bidder! The Wall Street Journal reports that the Crown consortium, led by Ford director Michael Dingman and former Ford and Chrysler executive Shamel Rushwin, are making a play for the Swedish marque. Crown is trying to lure former Volvo executives (including former CEO Roger Holtback) on board with a third of new Volvo equity in hopes of “emphasizing the Swedish nature of the company.” But can Swedish roots (or at least a good dye-job) match up with Chinese cash? The downside to the Geely bid is that the new company would walk away from pension obligations and inventory, making the deal worth less to Ford than the offered $2.5b. Meanwhile, SAIC is reportedly still in the running to buy Volvo as well. This one is still far from over.
Category: China
Ask a gearhead about Chinese auto styling, and the adjective most likely to come up is “derivative.” Or at least “crude.” Cars like the Rolls-aping Hongqi HQD helped build these unflattering associations, but this picture proves that they aren’t always true. This HQE, the chosen chariot for Hu Jintao’s National Day parade appearance [via Gasgoo], reaches back to FAW-Hongqi’s own heritage (rather than, say, the Robb Report) for inspiration. That’s a good trend for an industry that was fast becoming a car blog punchline.
Chinese T-bill buyers may have provided the capital for GM’s bailout (and by extension, GM’s bailout of Delphi) but American taxpayers will have to pay them back eventually. Meanwhile, the Chinese government gets to yea-or-nay GM’s rescue of its spun-off supplier. And the yeas have it. Automotive News [sub] reports that GM will assume more than $1b worth of Delphi’s debt, while waiving $2b in claims against its largest supplier. Additionally, GM will invest $1.75b in Delphi and provide an unspecified amount of new debt. China’s only concern was that Delphi set up firewalls between GM and its other Chinese clients in order to protect the intellectual property of Chinese firms. With that measure taken, and Chinese approval secured, Delphi appears on track to end its four year sojourn in bankruptcy by month’s end. Can GM afford this kind of outlay to keep Delphi alive? Shouldn’t Delphi have been given its own separate bailout to keep costs transparent? No matter, it’s fait accompli at this point. At least the Chinese government was kind enough to approve the deal (oh, and back its financing in the first place).
The Wall Street Journal reported today that Geely has offered Ford $2.5B for Volvo, making the Chinese automaker the “leading contender” for the Swedish brand. Leading? Are there other contenders we don’t know about? According to the WSJ, “the offer is higher than Ford or outsiders had expected for a brand that has lost more than $1 billion in recent years,” and yet the latest news from China [via Xinhua] has Alan Mulally saying there’s been “no new progress” in the ongoing negotiations. Now don’t get it twisted: nobody expects Mulally to publicly accept this kind of offer within hours of being reported, but you’d think he’d at least send encouraging signs. Instead Mulally tells Xinhua, “Volvo is a good brand, but Ford will sell it in order to shift its main focus on developing the Ford brand.” Which is like someone on Craigslist talking about the sentimental value of an item with the words “or best offer” attached to the asking price. The fact that Geely has made an offer for 100 percent shows that they’re serious (that used to be a Ford negotiating point). So what’s Big Alan waiting for? Offload the money-loser, snag some cash and move on. The deal doesn’t look to be getting any sweeter.
Forbes reports GM is creating a China Science Lab at its Shanghai manufacturing facilities where development work will take place on advanced vehicle technologies. GM won’t disclose the extent of its investment in the lab, but has said it will hire 100 employees from China and abroad to form the initial staff. John Du, the former manager of Intel’s China Research Center, will supervise work at the new lab, which will focus on “advanced engine technology, battery cells, safety research, driverless vehicles and light materials.” Which begs the question, has anyone told the Michigan Economic Development Corporation about this? Seriously, this seems like exactly the kind of high tech, green-jobs opportunity that Michigan’s politicians are constantly giving GM massive tax breaks for. Not to mention the raft of federal incentives, bailouts and green car-development initiatives. But, as GM’s Alan Taub puts it, “China has begun emerging as a world class research hub for automotive technology.” That and China has begun emerging as the only thing keeping GM going. Er, except for our federal incentives, bailouts and green car-development initiatives.
If there’s one thing that can be counted on in the world of investment, it’s that someone is bound to copy Warren Buffett’s latest move. The Oracle of Omaha has reportedly made a billion bucks in less than a year on his $230 mil investment in BYD, and that firm’s soaring stock price has other investors taking notice. Bloomberg reports that Goldman Sachs is looking at buying $250 mil worth of convertible bonds and warrants in Geely, in hopes of repeating Buffett’s success. With major global automakers (specifically GM, VW and Toyota) solidifying their dominance of the Chinese domestic market, Chinese automakers see the low-cost segments in other markets as their opportunity for growth, and Geely is no exception. The firm hopes to boost overseas sales to 66 percent of its annual sales by 2015, a goal that justifies its current pursuit of the Volvo brand (update from Thor Johnsen coming soon). Though a name-brand backer like Goldman could help Geely break into foreign markets, there are challenges aplenty for the planned investment.
When Fritz Henderson rosily predicted that GM’s IPO would help pay off taxpayer loans “faster than people think,” our primary diagnosis was delusion. And how could you blame us? GM’s challenged relationship with reality is long and well-documented. Plus, GM executives are currently the only sources of optimism about their IPO. But perhaps there’s something other than PR prerogative underlying GM’s “little engine that could” affirmations. If something does lie beneath, it could be that GM’s Chinese partners are standing by to boost the IPO. TradingMarkets reports that sources inside SAIC say the longtime GM partner (and China’s largest domestic) could inject as much as ten billion yuan (slightly less than $150m) into GM’s IPO. That’s much, much less than GM will need to pay back a meaningful portion of its taxpayer debt, but it’s still a glimmer of hope. Sort of. But Chinese firms are not considering buying into GM because they’re so impressed with GM’s sales or market share. Well, not in the US anyway. This is would be a long-term strategic play, and one that could strike at the heart of GM’s alleged “American” identity. But as TTAC pointed out throughout the bailout proceedings, GM has been wagged by its Chinese tail for a while. After all, why else is Buick still around?
“It’s our company’s long-term target, to be China’s No. 1 automaker by 2015 and to be the world’s leading car maker by 2025,” Build Your Dream’s marketing reps tell the AP. Ready for a reality check? BYD sold only 400k units last year, almost all of them in China. In fact, just a few years ago BYD wasn’t an automaker at all, but a battery supplier to laptop and cell phone companies. Several years and a big investment from Warren Buffet later, BYD is getting all kinds of cocky.
The tires v.v. chicken war has sent stock exchanges lower. It has the price of rubber plunging. It has people deeply worried. The Wall Street Journal has arrayed comments from economists around the world who call the Obama decision everything from “something really stupid” to “disappointing news.”
State-run Chinese news agency Xinhua trotted out their own team of experts, which came to the conclusion that “the new U.S. tariffs on Chinese tire imports could escalate trade disputes between the two countries, but a full-blown trade war is unlikely.” What, no trade war? Wait, there’s worse.
Read More >
Getting involved in European companies is likely to bring a complexity of personnel management that will blow their minds.
European auto analyst Graeme Maxton in an Automotive News [sub] report on potential issues with Chinese buyouts of western auto brands. “I’m not sure they can handle a brand like Volvo and turn it around,” adds an anonymous “senior executive working in China with a major U.S. automaker.” To be fair, Maxton concedes that auto-sector mergers are difficult under any circumstances, but that doesn’t stop AN [sub] from trotting out an ominous quote from BAIC chairman Xu Hey, who blames “western discrimination” for China’s trouble wooing established brands.
The Chinese aren’t messing around with this one. On Friday, Obama slapped a 35 percent punitive tariff on Chinese tires. On Monday, a soon as the WTO was open for business, China filed a formal complaint against the United States of America with the World Trade Association in Geneva, China Daily reports.
Our man Bertel Schmitt sees President Obama’s decision to place a 35 percent import tax on Chinese-made tires as counterproductive political pandering. Unless the Prez decides to please his friends in The United Steel Workers (ex-employer of the current chief of the Presidential Task Force on Automobiles, Ron Bloom) by slapping a tax ALL imported tires, 
production of said rubber will simply shift to another low-wage country. As the Wall Street Journal points out, US tire sizes mean that could take a while. The WSJ counts the cost to consumers.
China has a booming car market, the biggest of the world. Their car exports on the other hands, 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. China is mad as hell and won’t take it anymore. They do what they have to do: Buy foreign brands in earnest. Today: Saab and Volvo.
Read More >
The United Steelworkers had a big hand in putting Barack Obama in power. Now they want some payback. The United Steelworkers lodged a complaint that a flood of cheap Chinese tires had cost more than 5,000 union jobs in recent years. Obama has until Sept.17 to rule that the White House put a 55 percent tariff on tires imported from China. Which would be the end of Chinese tire imports. Tires? Steelworkers?
Read More >
Aw shucks, I was wrong. In my usual exuberance, I had said that triple digit growth could be in the cards for August auto sales in China. Big mistake. China’s passenger vehicle sales, including sedans, MPVs, SUVs and minivans grew only 94.7 percent year-on-year to 849,376 units in August, China Daily reports.
“The booming sales in August have surpassed even the boldest prediction in the industry, as sales in August were previously the weakest of the year,” said Cui Dongshu, deputy secretary-general of the National Passenger Car Information Exchange Association.
China is well on its way to sell more than 12 million vehicles this year.
Recent Comments