Commentary from Automotive News China

Why Chinese automakers won't buy distressed foreign brands

They Lack the Management Skills to Operate a Global Brand, Says Yang Jian, the Managing Editor of Automotive News China

By Published on .

Most Popular
SHANGHAI (AdAgeChina.com) -- With General Motors and Ford Motor shopping brands to stay afloat, many people believe that Chinese automakers might buy.

But that's not realistic. The purchase price is not the problem. Many Chinese automakers can raise the cash needed to buy, say, Ford's Volvo or GM's Hummer.

The main challenge is management. Chinese automakers are still developing the management talent needed to operate a global brand.
Yang Jian
Yang Jian
At a industry conference in Shanghai in November, Xu Heyi, the president of Beijing Automotive Industry Corp., was asked whether he would acquire a distressed foreign brand.

He paused a bit, and then said, "I don't know whether it is a pie or a pit."

Mr. Xu said his knowledge of the root causes of American automakers' financial trouble, and the culture and legal environment of the U.S. auto market, is limited.

On top of that, he said state-owned Chinese automakers still face many internal challenges and may not have the management depth to manage a global operation.

I think Mr. Xu was being very candid.

BAIC runs profitable joint ventures with Hyundai Motor Co. and Daimler AG. But BAIC itself is still shifting painfully from a bulky and inefficient state-owned enterprise to a modern company.

Mr. Xu is not alone. The automakers in China with deep pockets to acquire overseas brands are all state-owned. But few of them know how to operate globally.

The only company with some international exposure is Shanghai Automotive Industry Corp. But SAIC has its hands full after it acquired Korean automaker Ssangyong Motor Co. and the English brand MG Rover.

Moreover, due to slumping exports and weak domestic consumption, the Chinese economy is slowing. The World Bank expects growth to slow to 7.5% in 2009.

Deeply concerned about the dim prospects of the domestic economy, the State-owned Assets Supervision and Administration under the central government convened in November the top bosses of all major state-owned companies for an urgent meeting.

"No rush to do mergers and acquisitions, and watch over your cash flow," Li Rongrong, director of the administration, was quoted by official Chinese media.

It was a clear message that state-owned companies -- including automakers -- are not ready for foreign acquisitions even if the price is low.

Yang Jian is the Beijing-based managing editor of Automotive News China, which is published by the Automotive News Group of Crain Communications Inc. Crain is also the parent company of the Ad Age Group. This article was first published in Auto News China.

Return to AdAgeChina, click here
In this article: