Western Brands May Be a Step Too Far for China

Chinese carmakers are venturing on to the global stage with bids for Western brands from Volvo and Hummer to Saab, but there are doubts that inexperienced Chinese firms can manage the transformation such deals would bring, Reuters writes.

“Getting involved in European companies is likely to bring a complexity of personnel management that will blow their minds,” Graeme Maxton, a Europe-based independent auto industry analyst, told the news service, noting Chinese companies’ poor track record of managing their businesses.

After months of speculation, China’s Geely Automotive has this week admitted its interest in Ford Motor’s Volvo unit, whileBeijing Automotive Industry Corporation, whose advances on Opel were spurned by General Motors just weeks ago, is now eyeing the Detroit automaker’s Saab business.

“It’s no surprise China’s auto industry wants to go international,” Klaus Paur, director of North Asia automotive division of the industry consultant TNS, told Reuters. “But I have the impression they are getting too ambitious. There are a lot of question marks here as they don’t even have a solid brand in their home market.”

China, which this year overtook the United States as the world’s biggest auto market, has been a boon for Volkswagen, G.M. and other foreign carmakers, which accounted for nearly three-quarters of all cars sold there last year.

Many local manufacturers such as Geely and Chery Automobile have so far competed at the lower end. Beijing Automotive, a partner of Daimler AG and Hyundai Motor, doesn’t even have its own car brand.

But as wealth grows in the world’s third-largest economy, local manufacturers hope to build their own profiles by buying up distressed auto assets in mature markets.

“The temptation for them is obviously quick access to technologies, brands and mature markets,” a China-based senior executive with a major American automaker, who asked not to be identified due to the sensitivity of the issue, told Reuters. “But I’m not sure they can handle a brand like Volvo and turn it around.”

Mr. Maxton said there had been few examples of successful auto industry acquisitions, even for mature carmakers.

By contrast, Japan’s most successful automakers — Toyota Motor and Honda Motor — have followed an organic approach to growth, choosing to expand on their own.

Honda briefly owned Britain’s Rover, which now belongs to China’s SAIC Motor Corporation, but Japan’s No.2 automaker has since shunned buying brands for the sake of expansion.

South Korea’s Hyundai Motor Company has also opted to work its way up on its own.

Political barriers also loom large.

China has found it tough to buy nationally important brands overseas and there have been reports of Swedish opposition to selling Volvo to the Chinese.

Beijing Automotive was shut out of G.M.’s discussions with other bidders for Opel, due largely to the Chinese firm’s proposal to move Opel’s operations to China, executives and analysts said. Beijing Automotive’s chairman, Xu Heyi, blamed what he called Western discrimination toward Communist China for the failed attempt on Opel.

Beijing Automotive instead reached a tentative pact on Wednesday to take a minority stake in Swedish luxury sports car maker Koenigsegg, which had struck a deal to take over loss-making Saab from G.M.

“If we were unable to sail through choppy waters on our own, we still have a chance to get to the other side of the ocean by taking other people’s boats,” Mr. Xu told Reuters.

SAIC, China’s top automaker, had toyed with a similar idea, but still had painful memories of its ill-fated acquisition of South Korea’s Ssangyong Motor, Reuters said, citing a source close to the Chinese automaker.

Chery, Hunan Changfeng Motors and several other Chinese automakers had held early talks with European or American auto brands, but have held off making any commitments.

So far, Sichuan Tengzhong Heavy Industrial Machinery, a little known heavy machinery maker, is alone in unveiling a tentative deal to take over G.M.’s gas-guzzling Hummer brand, though Chinese regulators, aware that Beijing is pushing a ‘drive-small, drive-green’ policy, could reject that deal, analysts said.

“No one can be sure of the Tengzhong-Hummer deal until they see the red stamp,” Ji Junfeng, an analyst at Changjiang Securities, told Reuters.