Huge U.S.-Market Backdoor Ready To Open for Chinese Automakers

Huge U.S.-Market Backdoor Ready To Open for Chinese Automakers

By Michelle Krebs October 9, 2009

A few years back, it was the first appearance of a Chinese automaker at the Detroit auto show that seemed to start the serious speculation about when the Chinese would crack into the U.S. market. Assessing the functional but rudimentary models on display, some predicted 2015 or 2020.

Instead, how about next year?

OK, it won't be with their own China-built models. But there are three pending brand-takeover deals -- General Motors Co.'s Saab and Hummer and Ford's Volvo Cars -- in which a Chinese automaker has a leading or secondary role. If any of the three purchases make it to completion -- and it's probable at least two will -- Chinese automakers will in effect be selling vehicles in the U.S.

At that point, the Chinese maker's investment presence provides at least the potential for using the newly purchased brands' distribution and dealership networks to sell Chinese brands as well. Nobody's saying it's advisable to sell a Geely next to a Volvo -- but it could happen.

Here's a rundown of which Chinese automaker is involved with which buyout, and our rating, from 1 to 5, of the chances the deal will go down (5 being a sure thing):

Hummer: Although GM claimed there were at one time several interested suitors, now it's Sichuan Tengzhong Heavy Industrial Machinery Co. or nobody.

There have been fits and starts, particularly when the sale didn't happen as promised by the end of the third quarter and news spread last month the deal was being batted around what might be a disapproving Chinese bureaucracy. Many are skeptical of Tengzhong's stated goal to salvage some 3,000 blue- and white-collar jobs in the U.S. when Hummer sales totaled 8,193 through September, a 63.6-percent drop from last year.

GM officials continue to express confidence the deal can close by the end of the year and wire service reports late this week said a binding agreement was imminent, although the rumored price was well short of the half-billion dollars GM once thought it might squeeze out of Hummer. The U.S. government owns most of GM, so a rubber-stamp approval from our guys is assumed, but the deal still has to win a thumbs-up from the Chinese government.

RATING: 2.5

Saab: A consortium formed by maker of low-volume, slightly robotic-looking supercars Koenigsegg Automotive AB is the one and only stalking horse. National leaders want Saab to go to Swedish Koenigsegg.

But it hasn't been a slam-dunk. Koenigsegg had to purge the investor group of a party of questionable repute and although the state is backing the deal, China's Beijing Automotive Industry Holding Co. (BAIC) might be called the consortium's new sugar daddy, bringing a vital $400 million-plus to the table to supplement the $600-million loan being guaranteed by the Swedish government.

GM is unlikely to kick in much in the way of separation funding, but because pending new Saabs and others in the near future are based on GM structures and designed to use the General's powertrains, GM will be providing years worth of engineering and development support.

Pending an 11th-hour, Saturn-style bailout by the bidders, this deal will happen. Doubters are left to wonder, though, how long the apparent $1 billion in "startup" money can fund a revival of a long-fading brand whose U.S. sales have evaporated to a startling average of about 200 units per month.   

Could this be BAIC's comparatively low-investment quick access to an existing distribution network and an acceptable number of existing showrooms?

This deal is said to be tracking to close by the end of October. Given the track record for such projections, the end of the year is a better bet.

RATING: 4.5

Volvo: For months, the heavy favorite has been China's Geely Automobile Holdings Ltd., but word in Detroit was Volvo owner Ford Motor Co. was holding out for a competitor, if for nothing else than to help it drive the best deal.

It was reported this week that the competitor is the Crown consortium, led by a former Ford director and another former Ford exec -- and with the potential to sign on important Swedish investors for added public-relations firepower.

It's widely believed Geely -- in 2006, it had the distinction of being the first Chinese maker to display a car at the Detroit auto show -- is offering more cash but has certain conditions Ford could do without. But there's little doubt Geely can offer more in the way of near-term potential for advancing Volvo without Ford assistance.

One analyst with solid international contacts said this week it could be a coin-flip between the two bidders. The presence of former Ford employees could hold sway, and with nationalism playing such a role in these dealings, this is a tough call, so we'll rate the chances for both bidders.

RATING (Geely): 4
RATING (Crown): 3.5

-- Bill Visnic, Senior Contributing Editor

 

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.