China, GM and Chrysler: Hate to say I told you so…
November 19th, 2008 by Kent KedlIt’s not often in this China business that we get to say “I told you so” and actually have the proof that we did tell you so. Before I get to what I told you — check out this posting on a possible solution to GM and Chrysler’s troubles. In short, one of the leading business publications in China is running a story that two of China’s leading automotive conglomerates — SAIC and Dongfeng — are considering buying out some or all of GM (and maybe even Chrysler).
For those of you sputtering “When pigs fly!” or “Over my dead body” over the impossibility of this, check the sky for passing porcine and your wrist for a pulse. It is more than possible. In fact, it is probable.
It’s not just the fact that this opportunity is presenting itself — the Chinese government (and private Chinese companies) have a strategy to look for investment opportunities outside of China. And this is where the “I told you so” comes in. In a podcast a couple of weeks ago, I talked about “why China matters” in this time of global economic recession and — dare we say it — depression. This is what I said:
The third area in which China matters is in its very early stages and so is a bit tougher to pin down, but it should be on everyone’s radar screens, and that is China as an “investor.” For a couple of years now, the Chinese government has been quietly encouraging Chinese companies to look outward, to find markets and investment opportunities outside of China. Well, that quiet approach is now over, and the government is making their encouragement in very loud tones and is providing support to help them do so, organizing research delegations and providing cash grants and loans for overseas investments.
Wow. I don’t want to toot my own horn here and belie my humble Midwestern roots, but Jimmy the Greek couldn’t have been more accurate. I am getting the shivers!
Certainly, the details of the deal are going to take a while to fall together (and, this being China, they may even fall apart), but the one takeaway here is that we should not be surprised. And particularly in a global environment of troubled companies and cheap assets, Chinese companies — backed by a very supportive government — are going to be major players. Keep your eyes and ears open, people — there is a major economic shift taking place and the world is going to look much different when it is done!
November 20th, 2008 at 10:18 am
I frequent the factory floors of the big 3′s suppliers and competitors in the US. Even the suppliers to the big 3 seem to be on a different planet than the suppliers for example to the Japanese, never mind what goes on down on the factory floors of automakers. If the electronics industry is any guide which I work in. Chinese take over is not necessarily a bad thing. There will be a lot of losers as there is a race to the bottom, only the leanest will survive, but its this the point? I could envision a break up of a GM, where the low margin business goes to the Chinese, kind of what Lenova did with IBM and the Thinkpad, with the Volts of the world becoming its own entity with some US backing. Chinese perhaps involved in some kind of collaboration, but not ownership. The stuff in between that does not compete at the cutting edge or at the bottom disappearing. Sorry there goes your Dad’s Lincoln.
November 20th, 2008 at 3:18 pm
Good point, Brian. However, I think we might need to suspend judgment on HOW the Chinese companies would go to market should they do this — I don’t think we can necessarily assume that there will be this “race to the basement”. Sure, the Chinese manufacturers have been doing the small (and low cost and quality) cars here in China quite well (I still get nervous driving next to a QQ…I am afraid I am going to squash it!). But these Chinese automakers are getting more sophisticated in looking at market trends and responding accordingly. Look at BYD, a virtual unknown a few years ago, they are selling some cars here in China and are, supposedly, trying to lead the electric car push here.
What’s that phrase, “May you live in interesting times”??
December 2nd, 2008 at 8:47 pm
How much of GM’s tech could they send back home? Could they start pumping out fully modern cars – at a much lower cost than Japan?