By on August 1, 2010

For more than a year, I had been on my very own propaganda mission in China (and I’m still here in Beijing to tell it.) I had urged Chinese parts manufacturers to go overseas and to buy parts houses at firesale prices. By moving closer to the customer and up the value chain, by turning from contract manufacturer to marketer, the Chinese manufacturers could realize much higher profits. By turning from contract supplier to systems house, they would be about 5 years ahead of the technology curve: A systems house is tied into the development of a car. The Boschs, Magnas, Federal Moguls of this world harbor more secrets than a Tom Clancy novel. A year ago, I wrote in China’s Gasgoo: “While the idea of buying a foreign car brand for cheap is good, the practicable choices are limited. So it’s back to buying foreign parts companies. There will be many bankrupt foreign parts companies this year to choose from, all quite cheap, most with an established presence and manufacture in China.”

Someone seems to listen, finally. But maybe a little late …

Automotive News [sub] reports that “Chinese auto parts makers are moving into the overseas M&A fast lane, eying a distressed global market to close a technology gap with world leaders to meet sizzling demand at home and eventually sell overseas.”

According to the article, seeds are being planted “for a future crop of Chinese titans to compete with the likes of Robert Bosch and Denso.”

In a rare case of diplomacy, Automotive News says the Chinese “parts sector remains fragmented with 20,000 manufacturers.” More than year ago, yours truly put it more bluntly in a Chinese publication: “My biggest grief with the Chinese parts industry is that buying parts in China is very hard. The Chinese parts industry is losing huge amounts of business because the Chinese parts industry remains very inaccessible to many foreign buyers.”

Worse, the alleged “Chinese parts industry” is mostly a foreign industry that has plants in China. Seven of China’s 10 biggest component makers are foreign companies, and about 70 percent of the country’s $160 billion auto supply market is occupied by foreign or joint ventures. The 20,000 plus Chinese manufacturers do the drudge work for the foreign-owned titans.

Supposedly, the Chinese are getting tired of this. According to Automotive News, many Chinese firms are finally hiring investment banks, management consultants and law firms to study possible deals to buy foreign makers of more complex technologies.

“We have been advising a number of Chinese companies, which are actively looking at overseas acquisitions in the United States and European markets,” said Michael Jiang, a KPMG partner and corporate finance co-head of Automotive China.

Some deals already happend. Geely bought Australian gearbox maker Drivetrain Systems International, a supplier to Ford and Chrysler. Nexteer was sold by GM to a Beijing consortium with government backing. In March 2009, Delphi’s brakes and suspension business was bought by a consortium consisting of China’s Tempo Group, China’s Capital Iron & Steel Co. and the Beijing government. GM is a big seller of automotive know-how to China. At the same time, GM complains it is the target of industrial espionage, as China’s Global Times reports.

Jiang Yong, director of the Economic Security Studies Center at the China Institutes of Contemporary International Relations, snidely remarks that theft accusations are “usually made by companies whose technical capabilities are declining.”

No need to spy if whole companies are up for sale.

Who else could be on the sell side? Automotive News: “Ailing global players that could be looking to sell part or all of their operations include struggling U.S. firms like Delphi, Lear and Visteon.” Struggling German systems supplier Continental that found itself caught up in a takeover play gone wrong, has also been repeatedly rumored as a potential candidate. Together with the German auto industry, Continental performed an amazing recovery lately, and seems to be off the target list for the time being.

Continental might not be the only deal that is going away. As seen in Europe, the industry is recovering, and Chinese firms may have to act fast before currently distressed sellers disappear.

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7 Comments on “Last Chance For China To Buy Secrets For Cheap...”

  • avatar

    When the Chinese buy Bosch, Motori and Delphi, they’ll hvae technical parity (or more) with the rest of the world.

    The end times are upon us!

  • avatar

    Thank you, sir for writing such interesting and unique articles.

  • avatar

    If my experience is anything to go by, Chinese buying systems houses is going to be botched, and badly. My division of a small, successful instruments maker was purchased by a Chinese outfit which appears to have all kinds of backing from the Chinese government. The new leadership threw away the MRP system, then flaffled for six months about what would replace it, leaving six months’ worth of ad-hoc planning. The (new) VP of sales just found out he can’t forecast with ad-hoc planning. The new leadership threw away all the build procedures and the QA system, and now nothing goes together on the new line. They tried to simultaneously bring the new line up and change components, and what finally goes together doesn’t test out.

    The Chinese thought they were buying technology, when the root of our technology is purchasable by anyone. The algorithms critical to accuracy are publicly available. Our company understands system integration and that was dismissed as nebulous. They’re not so sure, now. I gave them eighteen months from the purchase to figure things out, we’re almost halfway through that and only now are they getting the idea that maybe what we were doing wasn’t because we were slow or bureaucratic.

    In my opinion the Chinese buy-out frenzy and economic change window is tighter than it was for the ’80s Japanese buy-outs. I believe they are not handling that well and the window’s closing. Mr. Schmidt descants on how successful the Chinese have been. I don’t see first-hand evidence of that; instead I see randomness and arrogance resulting in the destruction of valuable systems.

  • avatar

    Permit me an unfair remark here:

    Erm, Brakes???!!?? -I just can’t wait for Chinese “Quality” to be involved in the things stopping my car from having a crash.

    Our father, who art in heaven…

  • avatar

    You know, the rest of the world will be in trouble if China gets its hands on Delphi’s powertrain resources, Bosch’s engine parts technology (best injectors in town) and at least one good suspension supplier.

    Such an approach would allow the to leapfrog most of the midfielders in the industry much faster than the Koreans did.

    The question is… what Chinese company will lead the vanguard?

    As an aside: what’s up with the Facebook links here? If I post and I’m logged into my Facebook account, my post gets tagged “awaiting moderation” and is automatically deleted after a few hours… I’m trying to figure out if the words “Bosch” or “Delphi” are expletives in Swahili…

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