By on December 3, 2008

As reported by TTAC weeks ago, Chinese auto makers are seriously looking into buying all or some of General Motors. The story was never officially denied in China. Now, there are fresh and more concrete indications about a possible Chinese move on GM. Hu Xindong, Secretary to the Chairman of China’s third largest auto maker Dongfeng, said they have been contacted by financial groups which have close relationships with GM. Topic of the discussions: A possible takeover. This according to China’s National Business Daily via Gasgoo. His company “has not started formal discussions yet,” said Dongfeng’s Hu. He also said that “for the moment,” Dongfeng Motor has no intent to take over GM as a whole. They are interested  in buying “overseas assets.”  In China, “overseas” usually means outside of China. Hu: “Our managing board has not officially considered the option yet.”  In China, where one never gets a clear yes or no, these statements are tantamount to a “Hell yes! We are crunching numbers day and night!” When Dongfeng was floated weeks ago, eyebrows went up. Wouldn’t SAIC, GM’s longtime Chinese partner, be a better fit? So, where did SAIC go?

Meanwhile, Shanghai Automotive Industry Corp (SAIC) has concluded their own negotiations, and officially said they are not considering buying GM. That because of  “GM’s huge costs of compensating workers and other follow-up expenditures,” as Wang Liusheng, an auto analyst at China Merchants Securities did put it.

Subtext: Taking over GM nuts and all would have been nuts in Chinese eyes. The Chinese are interested in the assets, but they balk at the liabilities, especially the ones with a UAW attached. Any other outside investor who owns some sanity would look at it the same way.

SAIC dropped it, and the ball appears to be in Dongfeng’s possession now. Considering the – by Chinese standards – unusual candidness of Dongfeng, they are seriously kicking it around and are discussing the play with investment bankers and Dongfeng’s government backers. Then again, given that GM is heading to DC, it could be the China card that is being played. But then again, it’s Donfeng that is putting at least some cards on the table.

There’s the political angle: SAIC is very close to the Shanghai regional government, which is often at odds with China’s central government in Beijing. Dongfeng at the other hand is a central government creation. Dongfeng was founded at the behest of Chairman Mao Zedong in 1968, and 70 percent of their shares are said to be owned by China’s central government.  If the goverments are getting involved, they might as well get involved.

Here some background about Dongfeng’s joint ventures. Sourced from Wikipedia, usually a reliable source in this very inexact science:

Dongfeng Motor Group Company is the listed company of Dongfeng Motor Corporation.

Dongfeng Peugeot-Citroën Automobile, a JV with the PSA Group. Produces the Citroën ZX, Xsara, Picasso, and Elysée, and Peugeot 307

Dongfeng Motor Company, a JV with Nissan. Produces the Nissan Sunny, Bluebird, Teana, and Tiida

Dongfeng Honda Automobile Company, a JV with Honda. Produces the Honda CRV

Dongfeng Nissan-Diesel Company, a JV with Nissan Diesel. Produces heavy trucks.

Dongfeng Yueda Kia Automobile Company. Has a 25% share with Kia and Yueda to produce the Hyundai Accent, Kia Optima, and Kia Carnival/Cerato

Dongfeng Liuzhou Motor Company. Wholly owned subsidiary which produces the Dongfeng Future minivan.

Honda Automobile (China) Company. Dongfeng owns 10% of Honda’s importer to China.

Dongfeng Automobile Company Limited. A JV with Cummins to produce Diesel trucks and engines.

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21 Comments on “China’s #3 Dongfeng Hungry for GM...”

  • avatar

    I see these options:

    1) GM doesn’t get a bailout and dies before New Year’s Eve. In this case, Dongfeng and SAIC both can pick up all the “assets” they want without any UAW baggage.

    2) GM gets the money but will fail anyway. The outcome would be the same, only later. And the Chinese have time.

    3) GM gets the bailout and actually turns the company around. Unlikely but not completely impossible. This would mean, that they will have gotten rid of all the “follow-up expenditures”. At the same time, the stock price will probably still not go through the roof immediately, which would turn GM into a nice meal for either Dongfeng or SAIC.

    The vultures are circling…

  • avatar

    Let’s see. Western companies moved manufacturing to China, in order to salvage their profitability.
    Chinese companies grew rich, and are now in a position to buy these western companies.

    Interesting. Not a shot fired.

  • avatar

    China has a booming auto industry, but their auto exports are a joke. They are looking at making 8.6m this year, and at selling 8.2m domestically. That leaves 400K exported to odd markets such as Syria or Africa. And it might be mostly trucks. Cheap Chinese rigs sell quite nicely in the 3rd world. I’m away from my numbers, but they might import more cars than they export. This bugs the Chinese to no end. Here they are, the export engine to the world, but what about their cars? The joint venture cars, built to Western standards, are as good as those in the West. But their contracts don’t allow them to be exported. The home grown industry can’t compete abroad: Safety, emissions, standards compliance are a tough nut to crack. Whenever they try, out come some (valid or not) crash tests, and they are dead in the water. So the only choice that makes sense if they want to export is to take over a Western brand. Who are the cheapest on the market? Guess.

    If the Japanese can establish themselves firmly in Western markets, you bet the Chinese can do it just the same.

  • avatar

    @Stein: All indications say that the Chinese are locked and loaded. You won’t hear a lot of talk in China before anything is done. If someone high up says “our managing board has not officially considered the option yet,” and if that same board isn’t already deep in the consideration process and has him told it’s ok to say something, that someone would be running a service station in Ulumuchi tomorrow, if not worse. A Chinese executive doesn’t say anything without three stamps (or “chops” as they call it) on a prepared statement. It could have been that the investment bankers are doing the leaking, actually, they have done that for a while. Hu’s responses however have everybody sit up and take careful note. This is no idle chatter. It serves a purpose. Which purpose is still unclear, but we shall keep digging.

  • avatar

    The difference between Khrushchev and the Chinese leadership:

    He threatened Nixon (when Nixon was VP) with the Soviet Union “outmanufacturing” the US — didn’t happen.

    The Chinese just made it irresistible for greedy Western business leaders to move their manufacturing to China. Krushchev must be kicking himself, wherever he is – not only was it easy to do, but it could have made the Soviet Union rich in the process, while weakening the economies of his antagonists. Instead of breaking the Soviet Union with the expense of keeping up with NATO, Krushchev and subsequent Soviet leaders could have earned money and developed their national industries like the Chinese.

    Someone is laughing. The Chinese are quite adept at long term planning, and love using the opponent’s strength against the opponent.
    Quite ingenious of the Chinese to circumvent the “not to be traded abroad” agreement with their partner foreign manufacturers by buying them up – with their own money.

  • avatar

    I’d like to be the first to offer a warm welcome to our new Chinese Economic Masters! We sure made it easy for you……

  • avatar
    Geo. Levecque

    I suspect that because China has invested a lot of real dollars in the US economy, it will be a lot easier for the DongFeng outfit to purchase Companies like GM that are down on there luck, maybe the owners of Chrysler would be interested too?

  • avatar

    Wild Assed Guess: Remember that GM opined that some bond holders should trade in their bonds for equity? It had been suggested that the Chinese own a lot of bonds.

  • avatar

    I think the nationalistic responses to such a takeover are too big…US govt would bail out GM prior to a Chinese takeover, most likely–and both Dongfeng and GM know this. If the Chinese did take over GM, many customers would bail for Ford, anyways. At the most, the Chinese could buy into a few assets and help to establish a beachhead here…but a wholesale takeover won’t be allowed to happen.

  • avatar

    The Chinese watch Hollywood movies, use Windows Vista, Intel processors, and god knows what. The Chinese may buy GM – well, it’s not 1955 anymore. To all the xenophobes here, I say: welcome to the 21st century and please, leave your outdated overly nationalist sentiments at the door…

  • avatar

    If the chinese take over GM at least we know the quality won’t drop by much.

  • avatar
    Richard Chen

    Bloomberg link, along with expected GM denial.

  • avatar
    John Horner

    Isn’t it at least a little weird that in the Western world we take it as a article of faith that governments can’t run commercial enterprises, but that in China that is exactly how it is done? China’s economy is growing at a breathtaking pace, and the government has its hands in everything.

    Weird, eh?

  • avatar
    John Horner

    Grabbing the US assets of the 2.8 would be politically difficult for China right now, but getting hands on foreign assets wouldn’t be tough.

    Holden would be an easy grab for a Chinese company. Plenty of know how, and the Australians are already bending over backwards to sell China everything and anything. Neither the US government nor Australia’s are likely to object.

    When the front door is heavily defended, come in through a side door.

  • avatar

    Unfortunately, I think Stein X Leikanger has nailed it.

  • avatar

    @Richard Chen: Henry Wong works for GM Shanghai. What do you expect him to say? Hao de? The highly unusual color comes from Dongfeng. As an old chinahand, you know that these companies are fierce competitors. A (rather lame) GM/SAIC denial of this story is absolutely worthless.

    @John Horner: Politically difficult? Getting the blueprints for the Airbus production might be more sensitive than getting the plans for a GMC Yukon. They got the Airbus blueprints. Bill Clinton himself was connected with the Chinese getting missile guidance secrets as far back as the late 90’s.The only strategic value of a Chevy Cobalt is in the name. Why would China owning a failed GM be more politically difficult than China financing a good chunk of the American debt? China is a peaceful country. They were the ones who’ve been invaded again and again. When was the last time China started a war? Why is China politically more difficult than Japan or Germany? Get over it. It’s 2008.

  • avatar
    Paul Niedermeyer

    John Horner, It’s a lot easier to run a car company when the market is growing 20+% year after year. But when the Chinese market eventually (soon?) ripens top maturity, we’ll see how easy it is.

    The past 10-15 years in China were comparable to the early years in the US, 1900-1929, when there were dozens of manufacturers, and GM wouldn’t sell a car unless it had a 30% profit margin. That all changed, didn’t it. It will in China, too. And a lot quicker than it happened here.

  • avatar

    Herr Niedermeyer: The Chinese market is lightyears away from getting to maturity. A mature market is – by industrial consensus – somewhere in the range of 500 cars per thousand. The G7 is at over 600. The USA is at an obscene 760, has more cars than people with drivers licenses. THAT’s a mature market.

    The Chinese have (depending on how you look at it and interpret the notoriously unreliable Chinese numbers) between 20 and 40 million cars. It has a population of officially 1.3 billion people, inofficially it is 1.5 billion. Statistically, China hasn’t even begun to motorize (the traffic in Beijing says otherwise.) To saturate this market, it takes 750 million cars. China currentlly cranks out 10 million cars a year, at that rate: 75 years until saturation. The world cranks out around 60 million cars a year. If the whole world would produce for China only (and it won’t) it would still take more than 10 years.

    If you want to see mature markets, look at the USA, Europe, and Japan. In my book, Europe and Japan are in more serious danger, because they are lacking the young people. The US is in slightly better shape. Thank the sexually active Hispanics for that.

    As for the number of Chinese car makers, nobody has it. Some say 60, some say 120. My friends at Gasgoo say 40. Profits: They work at very slim profits. How can you make 30% profit if you sell a QQ for less than $4K? China will see a big consolidation in the next two years, the small will go away or get gobbled up, the big 10 will get bigger.

  • avatar
    Paul Niedermeyer

    Bertel: “the Chinese market is lightyears away from getting to maturity”

    Depends on how you define maturity. Let’s see if China really ever gets to the same levels of cars/people ratio as the G7, etc. I predict not.

    But you reiterated my point about consolidation; now that is inevitable.

  • avatar
    Richard Chen

    @Bertel Schmitt : I’ve never actually lived in China (or a certain disputed territory where my folks are from), nor worked in/with Chinese businesses. But yes, the lack of truth in an official denial is universal.

  • avatar

    Paul: In the trade, market saturation begins at 500 per 1000 pop. You learn that on the first day of car marketing school. Take still piss-poor Poland. It had 138 cars per 1,000 population in 1990. It had 351 per 1,000 population in 2006. It’s currently the only growth market in Europe, growth about 30%. It will start slowing down at 500. To sell cars you need people with some money, old enough to drive, who have no cars. A no-brainer. Often overlooked, as many no-brainers are.

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