Wo Er Wo Volvo China: Economic crisis great chance for Chinese firms to buy marquee makes

The Straits Times & The Malaysian Insider, June 18, 2009

BEIJING, June 18 — It started with Hummer. Volvo could be next. Opel, Buick and Jeep are targeted too. In the not too distant future, the famous vehicle brands of the West may be more Chinese than European or American.

As the US auto industry disintegrates, Chinese carmakers are circling over the carcasses of the likes of General Motors and Chrysler, eyeing the marquee international wheels owned by the tottering American giants.

“Things are cheap now. It's good shopping time,” said Richard Tay, a former vice-president of DaimlerChrysler in China.

Beijing Automotive, one of China's big five motor giants, is reportedly sending a team to Sweden this week to size up Volvo, adding its name to a growing list of Chinese bidders for the brand that is known here as Wo Er Wo.

This follows one of the most eye-popping bit of auto news in recent weeks, when it was revealed that little-known Chinese machinery maker Sichuan Tengzhong had made a surprise bid for Hummer — that petrol-guzzling behemoth made famous by American GIs and, of course, Arnold Schwarzenegger.

The deal, which has not yet been approved by the Chinese government, is clouded in controversy, with many in China slamming the purchase as running contrary to the official stance of promoting a greener society.

But the acquisition of these foreign brands does carry a “high degree of attractiveness” for Chinese companies, said Beijing-based auto analyst Bill Russo.

The most alluring reason is to use these established names to grab a slice of the increasingly lucrative Chinese car market.

For the past five months, China has been beating the US as the world's largest car market, and the projection is for sales this year to crack the 10-million-unit barrier for the first time.

Despite the economic crisis, Beijing showrooms are reporting two-month-long waits for customers wanting a set of new wheels.

The International Monetary Fund estimates that by 2050, China will have as many cars as the whole of the world does today — 700 million.

And Chinese buyers crave foreign cars, in particular the Western brands, which are seen as status symbols, more prestigious than the local makes, or even the South Korean and Japanese cars.

“The domestic companies are looking at foreign brands because they need them to target the higher-end market,” said analyst Ricon Xia of Daiwa Securities.

While first-time, young car buyers in China make do with a domestic QQ or Dongfeng, there is no doubt that most urban Chinese aspire to own a European brand such as Germany's BMW or Mercedes-Benz.

But the Chinese automakers also want these established Western brands to enter the international market.

Instead of following the Japanese and Korean models of developing indigenous brands to conquer the world, the Chinese prefer a short cut.

“How long did the Japanese and Koreans take — 30, 40 years? A brand takes generations to build. Nobody wants a Made in China car today. So it's easier to buy a famous foreign brand,” Tay pointed out.

“That's the advantage of the Chinese now. They have the money, they can shop. They do not need to start from zero. Just copy and take over.”

The acquisitions are also attractive as a means to obtaining the technology and global sales and distribution network which Chinese carmakers lack.

While years of joint ventures with foreign giants like Volkswagen have allowed the Chinese to pick up some of the technologies — such as assembly techniques — experts say the local industry still faces difficulties in building a top-notch engine from scratch.

But analysts have warned that buying these big brands does not mean that the road ahead will be smooth.

Shanghai Automotive acquired South Korea's Ssangyong in 2004, but it did not lead to happily ever after, and Ssangyong went bankrupt earlier this year.

Xia said many of these foreign car companies come with strong labour unions, something which Chinese firms will not be familiar with.

These brands are also not in the best of shape.

“The reason they are for sale is that they are not doing well,” said Russo.

“Chinese firms need to take a bite they can chew instead of swallowing the whole thing.”

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