By CT Johnson
Chinese automakers made two bold overseas moves this week, with Beijing Automotive Industry Holding Co. bidding for GM's Opel and Vauxhall divisions and Guangzhou Automobile Group signing a joint venture agreement with Italy's Fiat. Both deals show the growing clout of Chinese companies in the international market.
According to sources at GM, on July 4, Beijing Auto submitted a non-binding proposal worth a reported €650 million for German-based Opel and U.K.'s Vauxhall. GM is already negotiating the sale of its two major European brands with a consortium led by Russia's Sberbank and Canadian auto-parts manufacturer Magna International.
The announcement places pressure on the Russian-Canadian group, which was chosen by the German government as the preferred purchaser of Opel earlier in the year. However, talks between the consortium and GM recently slowed when disputes arose over the rights to use GM technology and engineering designs.
Frankfurter Allegemeine Zeitung reported that GM is only considering the Beijing Auto deal as a back-up to an agreement with Sberbank and Magna. GM was apparently reluctant to accept any bid at all from the Chinese automaker because of concerns that such a deal would create further competition for GM in China.
Beijing Auto's offer is for a 51 percent stake in the German and British carmakers, with GM holding the remaining 49 percent. This structure is somewhat simpler than the Sberbank-Magna offer, which gives GM a 35 percent share and distributes the remaining ownership between Sberbank, Magna and Opel's dealers and employees.
Both the UK and German governments have committed funds to underwrite the Sberbank-Magna transaction. This financial support is part of an effort by these governments to protect manufacturing jobs in both countries. Industry-watchers have suggested that Beijing Auto may derive some advantage from the fact that they don't require government funding to complete the deal.
Just two days after the Opel bid was announced, state-owned Guangzhou Automobile Group signed a joint venture agreement with Fiat Group as part of the lead up to the G8 summit in the Italian city of L'Aquila. Italian Premier Silvio Berlusconi and Chinese President Hu Jintao witnessed the signing of the deal during Hu's recent visit to Italy.
The joint venture, which will begin making cars in the second half of 2011, plans to produce Fiat's Linea sedan as well as two different engine models at a new factory in Changsha, the capital of Hunan Province. Investment in the joint venture will total €440 million.
This is not GAG's first experience cooperating with overseas carmakers. The company teamed up with Fiat in 1998 to develop the first vehicle to be made under the GAG brand. It also has partnerships with Japanese carmakers Honda Motor Company and Toyota Motor Corp.
Both transactions, which are a continuation of China's recent overseas investment spree, show the manufacturing and financial strength that the country's automakers now wield. At a time when America's GM is under bankruptcy protection and Germany's Mercedes-Benz is closing factories, Chinese automakers like Chery, Beijing Auto and GAG are spreading their wings and buying up overseas assets at distressed market prices.
Earlier this year, Tenzhong Heavy Industrial Machinery Company, a maker of infrastructure building materials and special-purpose vehicles, announced that it had reached an agreement to purchase GM's Hummer brand. Although the deal faces significant regulatory hurdles, Tenzhong's acquisition is emblematic of the impact Chinese companies now have on the world market. Before announcing the Hummer deal, Tenzhong was an obscure road-building company in Sichuan. Today, it is involved in one of the highest profile transactions in the automotive world.
To be sure, Chinese carmakers have the wind at their back. China is set to pass the U.S. as the world's largest vehicle market later this year. The Ministry of Commerce has simplified the rules for overseas acquisitions and started a "go abroad" campaign. Chinese banks are now allowed to finance acquisitions, a practice that was previously not allowed.
All of this, combined with China's dominant position in manufacturing and its ready supply of cash, makes it inevitable that Chinese car companies will assume a greater role in the worldwide industry. It only remains to be seen what that role will be.
(China.org.cn July 9, 2009)
