With Volvo, Chinese eye M&A abroad to win at home

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OVERSEAS ACQUISITIONS
Acquisitions of established foreign marques can offer immediate access to both brands and technology, and Chinese automakers are taking advantage of an industry slump to snap up assets from financially strapped global players.

Sichuan Tengzhong Heavy Industrial, a little-known machinery maker, last year agreed with GM to take over the Hummer brand but is still awaiting regulatory approval and has extended the deadline for closing.

Analysts say Chinese regulators may be moving cautiously due to Tengzhong's lack of expertise in autos and the gas-guzzling Hummer's poor environmental record.

Mid-sized automaker Beijing Automotive Industry Holding agreed last year to pay USD 200 million for three Saab vehicle platforms to be used to develop its first own-brand vehicle.

China's brightest hope in cross-border auto deals is Geely's plan to buy the prestigious but money-losing Volvo brand.

However, scepticism abounds. If Ford could not turn Volvo around, what are the chances for a company with only 13 years in the car business?

"It's not easy. Volvo is a good brand, yet it has been challenging whoever the owner has been," said Terry Johnsson, vice president of GM's car venture with SAIC.

But he added: "Personally, I wouldn't bet against it. I think they have the ability to fund the investment ... I am guessing their attitude will be it has to succeed so they will bring a single-minded view to that."

Beijing's commitment to the deal's success is clear.

Chinese commerce ministry spokesman Yao Jian has said the Volvo deal would give China access to much-needed technology. Overseas acquisitions would also be a better use of China's USD 2 trillion-plus in foreign exchange reserves, 70 percent of which are now estimated to be sitting in US-dollar denominated debt.

Volvo may also get a boost from Beijing's plan to support domestic brands, including through government procurement.

"The mandate from the government is to build local brands and Volvo is now a local brand. Maybe there will be some special treatment they can take advantage of and gain the hearts and minds of Chinese with a global product but local ownership," said John Bonnell, a senior director with auto consultant J.D. Powers.

The public has been pushing the drive to buy China made, especially after Mercedes and BMW were added to the list of approved official cars for bureaucrats in June 2009, sparking an outcry in Internet chat rooms.

Geely, which has an aggressive target of boosting its sales to 2 million vehicles by 2015 from last year's 321,900 -- about the same as Volvo's global output -- is exuding confidence.

"I'm very excited about the Volvo deal and very sure we can succeed," said a broadly grinning Huang Biao, 27, a team leader at a welding workshop in Geely's auto plant in Ningbo.