Chinese Car Companies Resort to Buying Brands Rather Than Creating Them

Like BAIC's Bid for Opel, Chinese Firms May Acquire Other Troubled Global Car Brands

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SHANGHAI ( -- For a long time, China's government has hoped domestic companies running joint ventures in China with foreign automakers would develop their own world-class cars by learning from their foreign partners.

But the bid Beijing Automotive Industry Holding Corp. (BAIC) made for Opel last week shows that the government has finally abandoned that hope and is starting to encourage select domestic automakers to by distressed foreign brands.

The first joint ventures between domestic and foreign automakers such as Beijing Jeep Co. and Shanghai Volkswagen Automotive Co. were established in the early 1980s.

Since then, a Sino-foreign joint venture with the foreign side holding no more than a 50% stake has become the formula for foreign car makers wanting to build vehicles in China.
Yang Jian
Yang Jian
The rationale is that forcing a foreign automaker to enter China through a joint venture gives the local company the opportunity to master the technology and expertise of car manufacturing.

But this has proved to be wishful thinking.

Two-and-a-half decades have passed and dozens of such joint ventures have been built in China. But no domestic automaker has achieved what the government wanted.

While some own-brand cars are built on platforms transferred from global automakers, almost all of the rest are products of the reverse engineering of international models. Some domestic firms continue to resort to outright copying.

Because they still don't know how to make good cars, domestic automakers have been unsuccessful in penetrating markets in the developed world.

They have failed to produce world-class cars for two reasons. First, foreign companies have been careful not to transfer proprietary technology, or teach their domestic partners about product design and development. Those are the most important stages in making cars.

Second, the profits reaped from joint ventures have been easy money for domestic automakers. They have had little incentive to make an effort to really learn about making cars themselves.

Since 2005, the government has come to acknowledge the failure of the joint venture model. At the same time, it has started to explore allowing state-owned automakers to acquire foreign brands.

Acquiring a foreign brand can be a shortcut for domestic companies to gain access to advanced automotive technology. But this option involves high risks given domestic automakers' lack of management depth and experience in operating overseas.

Nanjing Automobile Group Corp. suffered huge losses after it bought the MG brand in 2005. Shanghai Automotive Industry Corp. managed to develop its own Roewe brand cars on old Rover platforms it bought in 2005. But it failed to revive another moribund foreign acquisition, Ssangyong Motor Co.

Due to the global economic recession, several global car brands such as Volvo and Opel have been put on sale by their owners, creating opportunities for Chinese automakers to snap them up at low prices.

Inside the government, the debate on whether to allow domestic automakers to acquire troubled foreign brands has re-started. Those supporting overseas acquisitions are now gaining the upper hand. Sources close to the bid for Opel say it was the government that pushed forward an otherwise cautious BAIC.

Only seven months ago, BAIC's president Xu Heyi told Automotive News China at an industry conference in Shanghai that he was still very cautious about bidding for troubled international brands. "I don't know whether it is a pie or a pit," he said.

But that has changed. Now, with the government leaning increasingly towards supporting overseas acquisitions, I won't be surprised if another Chinese automaker follows BAIC to bid for a troubled global car brand.

Yang Jian is the managing editor of Automotive News China, which first published this Viewpoint article.

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