Chinese Carmakers “Unlikely” to Buy GM Pieces, at the Moment
5 December 2008
It is reported in the foreign press that Dongfeng Motor Corporation (Dongfeng), China’s third largest automobile group, is planning to acquire brands of GM. Hu Xindong, Secretary to the Chairman of Dongfeng, was quoted as saying they have been contacted by financial groups which have close relationships with GM. But the Chinese automaker is highly unlikely to do so as long as any acquisition was tied to the powerful United Auto Workers trade union.
A manager of a Dongfeng subsidiary told China Business News that the Dongfeng was unlikely to acquire GM’s sub-brands, as Chinese auto companies also still lack international management skills. Dongfeng’s official reply is the company “hasn’t heard of the news”.
Since June 2008, when GM was rumoured to be seeking to sell Hummer, it has been looking for buyers for its many brands. But GM vice-chairman Bob Lutz told a China Business News reporter that despite many inquiries, no company has begun substantial negotiations with GM.
An auto industry consultant close to GM top management told China Business Reporter that consulting companies were being commissioned to inquire about brand prices, and making preliminary estimations. “Many attempt to contact GM, but all the plans are still on the paper,” said the consultant. According to him, a Dongfeng acquisition may also be a rumour unless both Dongfeng and GM respond positively to the news.
A GM Asia Pacific senior manager confirmed that an inquiry didn’t mean the acquisition was a done deal as inquiries happen almost every day in the auto industry.
Other rumours since October include a GM merger with Chrysler, a Renault and Nissan joint bid for a 30% stake in Chrysler, and even an attempt by SAIC to gobble up GM. To date, none of these have been found to contain any truth.
A rescue of all or any of the three Detroit auto giants has become the hottest item in the auto industry, so any slight move will attract wide attention.
A look at multinational M&A actions in the auto industry in 90s, though, throws a discouraging light on the subject.
BMW acquired Great Britain’s Rover in 1994 for £800 million. By the end of 1998, Rover had brought BMW over $3 billion in losses, and BMW sold out of Rover in 2000.
Daimler-Benz “merged” with Chrysler (it was really an acquisition) for $36 billion in 1998 and created the new company DaimlerChrysler, but the predicted “transatlantic synergies” never gelled and it bailed out for $7.4 billion nine years later.
In China, SAIC’s merger with Korean carmaker SsangYong has added no value, and it is hard to judge if Nanjing Automobile Corporation’s acquisition of Rover is successful three years after the deal.
It should be plain to Dongfeng that without any experience in international automaking management, an acquisition of a GM brand is doomed to fail.
According to Zhao Xuegui, auto analyst in Everbright Securities, the most important point of a Dongfeng acquisition is what it can get from it. A deal might be reasonable if it sought only to gain advanced technology by buying a GM brand at a reasonable price. But any deal that includes GM’s enormous employee welfare and retirement liabilities, not to mention its legacy factories, is going to be just too expensive, as was Nanjing Automobile Corporation acquiring of SsangYong.
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Chinese Carmakers “Unlikely” to Buy GM Pieces, at the Moment
5 December 2008
It is reported in the foreign press that Dongfeng Motor Corporation (Dongfeng), China’s third largest automobile group, is planning to acquire brands of GM. Hu Xindong, Secretary to the Chairman of Dongfeng, was quoted as saying they have been contacted by financial groups which have close relationships with GM. But the Chinese automaker is highly unlikely to do so as long as any acquisition was tied to the powerful United Auto Workers trade union.
A manager of a Dongfeng subsidiary told China Business News that the Dongfeng was unlikely to acquire GM’s sub-brands, as Chinese auto companies also still lack international management skills. Dongfeng’s official reply is the company “hasn’t heard of the news”.
Since June 2008, when GM was rumoured to be seeking to sell Hummer, it has been looking for buyers for its many brands. But GM vice-chairman Bob Lutz told a China Business News reporter that despite many inquiries, no company has begun substantial negotiations with GM.
An auto industry consultant close to GM top management told China Business Reporter that consulting companies were being commissioned to inquire about brand prices, and making preliminary estimations. “Many attempt to contact GM, but all the plans are still on the paper,” said the consultant. According to him, a Dongfeng acquisition may also be a rumour unless both Dongfeng and GM respond positively to the news.
A GM Asia Pacific senior manager confirmed that an inquiry didn’t mean the acquisition was a done deal as inquiries happen almost every day in the auto industry.
Other rumours since October include a GM merger with Chrysler, a Renault and Nissan joint bid for a 30% stake in Chrysler, and even an attempt by SAIC to gobble up GM. To date, none of these have been found to contain any truth.
A rescue of all or any of the three Detroit auto giants has become the hottest item in the auto industry, so any slight move will attract wide attention.
A look at multinational M&A actions in the auto industry in 90s, though, throws a discouraging light on the subject.
BMW acquired Great Britain’s Rover in 1994 for £800 million. By the end of 1998, Rover had brought BMW over $3 billion in losses, and BMW sold out of Rover in 2000.
Daimler-Benz “merged” with Chrysler (it was really an acquisition) for $36 billion in 1998 and created the new company DaimlerChrysler, but the predicted “transatlantic synergies” never gelled and it bailed out for $7.4 billion nine years later.
In China, SAIC’s merger with Korean carmaker SsangYong has added no value, and it is hard to judge if Nanjing Automobile Corporation’s acquisition of Rover is successful three years after the deal.
It should be plain to Dongfeng that without any experience in international automaking management, an acquisition of a GM brand is doomed to fail.
According to Zhao Xuegui, auto analyst in Everbright Securities, the most important point of a Dongfeng acquisition is what it can get from it. A deal might be reasonable if it sought only to gain advanced technology by buying a GM brand at a reasonable price. But any deal that includes GM’s enormous employee welfare and retirement liabilities, not to mention its legacy factories, is going to be just too expensive, as was Nanjing Automobile Corporation acquiring of SsangYong.
However, if GM tanks and parts come up for sale…
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