Big 3's Chinese partnerships evolving

Detroit News, May 27, 2010

Christine Tierney / The Detroit News

Beijing -- Like relatives marking a festive occasion, top executives from General Motors Co. and its partner Shanghai Automotive Industry Corp. posed for a group portrait here at China's biggest motor show last month.

GM's 13-year-old venture with Shanghai Automotive stands out as one of the happiest and most successful pairings between a Chinese and foreign automaker.

But many partnerships haven't been as fortunate. Chrysler Group LLC no longer has a partner in China, although it was the first foreign automaker to form a venture here. Its disappointing relationship with Beijing Automotive Industry Corp., formed in 1983, ended two years ago when Daimler AG sold Chrysler and retained the venture partnership.

Chrysler is counting now on joining a venture that Fiat SpA is forming with Guangzhou Automobile Group.

Ford Motor Co. is reviewing its options in China, too, after cutting its stake in Mazda Motor Corp. They are still partners in a three-way venture with Chongqing Changan Automobile Co. and want to restructure the venture, but need approvals.

Chinese carmakers are frustrated by the limitations of the ventures, analysts say, prompting questions of whether the joint-venture business model has outlived its usefulness.

Chinese automakers were meant to be the beneficiaries of government rules barring foreign firms from producing vehicles in China except in ventures with domestic companies.

But China's carmakers haven't gained as much expertise from their foreign partners as they hoped. Global automakers have been reluctant to share technology for fear it might be pirated by China's carmakers.

The Chinese have learned how to assemble vehicles, says Bill Russo, a Beijing-based consultant at Booz & Co., but they still lack the critical abilities to design and develop competitive models. "And they're not going to get those capabilities through joint-venture cooperations."

Taking charge

But now, China's automakers are reaching beyond the ventures to obtain the know-how they need, said Michael Dunne, president of Hong Kong investment firm Dunne & Co. "The companies want to take charge and treat the joint ventures as money-makers to fund their own programs."

Last year, Beijing Automotive bought technology and tooling from Saab Automobile to produce old 9-5 and some 9-3 models.

Shanghai Automotive acquired rights to some Rover technology, which it uses to produce vehicles under its own new Roewe brand. Those models were on display in the same hall as the vehicles produced by the GM-SAIC venture.

The ambiguity of the relationships between venture partners is captured in a Chinese phrase used often to describe them: "Same bed, different dreams."

Are GM officials concerned that they're helping their partner to become a rival?

"If we don't support them, they'll find other people to help them become more competitive," said Joseph Liu, a former GM executive who is now executive vice president for sales and marketing at Shanghai GM.

From the outset, Liu said, the Beijing authorities were clear -- they wanted China's carmakers to develop and generate jobs.

"If we have the choice, our natural approach is not a joint venture," said Carlos Ghosn, CEO of both Renault SA and Nissan Motor Co. "This was the rule, and we played by the rules."

But, he added, Nissan has been fortunate in its partnership with Dongfeng Motor Corp., one of China's oldest automakers. "They helped us a lot."

Complicated relationships

Both GM and Nissan credit their good relations with their partners to the fact that they have one main venture partner in China.

Volkswagen AG, Toyota Motor Corp., most other foreign carmakers, and all the Chinese players have multiple partners. They can play them off each other, and do, but the arrangements can become very complicated.

Analysts attribute GM's success to the vision of Jack Smith and other chief executives who grasped China's potential. GM contributed its newest models to the venture, and it took its partner's advice on what to sell.

Looking back on Chrysler's disappointing experience, analysts say the automaker came into China with Jeep trucks, which looked workman-like to the Chinese. In 1983, Chinese officials and well-heeled customers wanted to ride in the back of sedans.

Chrysler's activity in China is now limited to some minivan production licensed to a local manufacturer.

Even GM's ties with Shanghai Automotive were the object of speculation in December, when GM sold a one-point stake in the venture to SAIC, leaving it with 51 percent.

Tim Lee, head of GM's international operations, told reporters last month that the relationship was still strong, and the partners were teaming up on a bold new project: exporting low-cost Wuling vehicles from China to India.

With China showing no inclination to drop the requirement to produce vehicles in ventures, analysts say automakers will have to find ways to make them nimbler, to seize new and changing opportunities.

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