GM and Ford Looking to Shed Their European Brands, Only Chinese Willing to Buy

While the probable take over in the case of Volvo and purchase of a significant shareholding in the case of Saab by major Chinese car makers is being met with varying degrees of  bemusement or disquiet by Swedish politicians, it illustrates an interesting trend at least among car makers and may be wider industrial products firms. In the past, firms from developing nations have purchased western companies to gain a toehold in developed markets, gain experience, technology, etc. Take a look at Tata’s purchase of Jaguar-Land Rover or of Corus Steel. The synergies with their home market are limited; the primary object is to take the company onto the international stage. But China’s Beijing Automotive Industrial Holding’s (BAIC) interest in taking a minority shareholding in GM’s Saab (Swedish super car producer Koenigsegg is to be the majority shareholder of the consortium) has more to do with potential sales in China. Under GM ownership, Saab only sold a few hundred cars a year in China but under the terms of BAIC’s rumored $400m investment, the company wants to initially sell European Saab models and later to set up manufacturing in China.

This comes just a week after Geely Automobile said it was in talks with Ford about a bid to buy the whole of Volvo. The deal is likely to be between $1.5 and 2.0 bn but will take months to complete, if it goes ahead, because of the complexity of future component supply and intellectual property issues. Although Volvo makes cars in Sweden and Belgium the largest sales market is the USA. A slump in luxury car sales and currency losses resulted in a US$ 231m loss in the second quarter. But as much as or more than the European manufacturing facilities and worldwide sales Geely is said to be keen on access to Volvo’s first world technology.

When you consider the cost of developing a new platform can be up to $1bn, buying into a premium brand and taking their technology actually makes good sense. Both firms will continue to need massive funding if they are to continue to develop new platforms in the future but both firms also have premium models that can be repackaged for production and sale in the rapidly growing “middle class” China market. In total volume terms, China is set to become the largest car market in the world this year. Although August’s 90% increase in sales over the same month a year ago  is probably a temporary distortion the fact remains Chinese sales have been persistently strong this year, boosted by government incentives to buy sub 1.6 liter cars, which could push sales north of 12 mcars this year.

What is harder to understand is China’s Sichuan Tengzhong Heavy Machinery purchase of Hummer earlier in the summer, STHM is not even a car maker. May be they see the Hummer as close to their special use vehicle division and feel there is a potential market in China. No firm plans have been announced though to move production to China.

It would seem struggling western car companies have few options in the current market though, witness GM’s struggle to find a buyer for its European subsidiary Opel. Even with German government support (or may be because of it – due to the strings attached) GM only had two buyers. Even so, intellectual property became the main topic again with worries that GM would lose control of IP if the front runner (Magna and Sberbank/GAZ of Russia) was favored. This is the likely outcome and will give Russian car maker GAZ access to all of Opel’s design technology to help develop their East European market. Something a stronger GM may live to regret 5 five years down the line.

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