Muller's Maalox Moment: China Turns Down Subaru

Bertel Schmitt
by Bertel Schmitt
muller s maalox moment china turns down subaru

What looks like a Chinese-Japanese matter should cause considerable heartburn in Sweden and the Netherlands: The Chinese government has informed Fuji Heavy Industries Ltd. that it will not approve the automaker’s application to set up a joint venture in China, says Japan’s Yomiuri Shimbun. Let’s take a closer look.

Fuji Heavy, manufacturer of Subaru cars, had no manufacture in China. Rather belatedly, it negotiated a joint venture with China’s Chery. These joint ventures require government approval, so in May, the necessary papers were filed with China’s National Development and Reform Commission. The application called for a plant near China’s port city of Dalian. The intended annual capacity of that plant was 150,000 units by 2015. Local and regional authorities usually would fall over themselves to attract such an investment.

China’s central government did not want it. According to the Yomiuri, Fuji Heavy was told the application was denied because Subaru “is an affiliate of Toyota Motor Corp.” Toyota already has two joint ventures in China, and a company can’t have more.

This is widely seen as a face-saving pretext. Toyota has a 16.5 percent stake in Fuji Heavy. If someone would draw a map of cross-holdings in the Japanese auto industry, the Tokyo subway map would look like a Mark Rothko painting in comparison. Says the Yomiuri:

“Observers suspect that China’s growing concern regarding overproduction of cars amid its economic slowdown is behind the latest move. To avert the problem, the Chinese government intends to expedite introduction of state-of-the-art technologies, such as hybrid cars and electric vehicles, they said.”

“Some observers believe the latest case indicates that Japanese firms’ entry into the Chinese market is at a crossroads.”

The complete Chinese car industry is at a crossroads. The explosive growth of China’s car market has made way to single digit growth rates. This is not unusual for China. Instead going through the boom and bust cycles of developed markets, China goes through cycles of big booms and single-digit boomlets.

The Chinese car industry is largely a foreign car industry. According to the China Association of Automobile Manufacturers (CAAM), the market share of homegrown passenger vehicles is on the decline and down to 37.2 percent. Most of the large joint ventures are in the hands of the central or regional governments.

Take SAIC as a for instance. SAIC produced 3.6 million cars last year. Only 346,525 of those were SAIC’s own. Some 3.3 million mostly raised the volume and income of GM and Volkswagen.

The large joint ventures are busy adding capacity in China as demand cools down. China’s government finds itself aligned with the interests of the world’s major automakers. When push comes to shove, SAIC (Volkswagen, GM), FAW (Volkswagen, Toyota, GM), Dongfeng (Honda, Kia, Nissan, PSA), Chang’an (Ford, Mazda, Suzuki, PSA), BAIC (Daimler, Hyundai), or Guangzhou Auto (Toyota, Honda) are closer to the hearts of the Chinese government than their own smaller independent (or semi-independent) Chinese automakers. The heavily fractionalized Chinese car industry must consolidate, the government had demanded that for years. The wish from above was largely ignored. What the regulators don’t want is new brands and more capacity outside of China’s state-owned sphere. Actually, they wouldn’t mind a little shake-out that increases the volume at the top.

And why should that give Saab heartburns? Saab is under creditor protection. It hopes every day that the NDRC will allow a joint venture with China’s Youngman and car dealer chain Pangda. If a deal between Fuji Heavy and Chery (# 21 and #22 on the list of the world’s largest automakers) has been denied, how do you rate the chances of two companies that aren’t even on that list? If it took the NDRC since May to find out that Toyota has a 16.5 percent stake in Fuji Heavy, how long will it take the NDRC to decide that the Youngman application hasn’t been properly filed, and please submit a new one? If China doesn’t want a 150,000 units Subaru factory, do you think it wants a Saab that is on Swedish life support?

China will take whatever state-of-the art technologies – when they are cheap in a bankruptcy sale. BAIC will be happy to buy it at scrap value. Meanwhile in Sweden, the Saab faithful celebrate Octoberfest. With live Internet-hookup to China …

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2 of 15 comments
  • Shaker Shaker on Oct 03, 2011

    Sorry for the OT, but that CCTV commentator is HAWT

  • Dvp cars Dvp cars on Oct 03, 2011

    .......for a small automaker, Subaru has a knack for being a political hot potato....they exported to Israel during the 70's and early 80's, the only Japanese brand that dared defy the Arab oil states' threatening embargoes. To this day they are still a popular car there, but recently became embroiled in controversy over a local dealer's TV ad, allegedly depicting a Subaru hit-and-running Palestinian children.

  • Jeff S I don't believe gm will die but that it will continue to shrink in product and market share and it will probably be acquired by a foreign manufacturer. I doubt gm lacks funds as it did in 2008 and that they have more than enough cash at hand but gm will not expand as it did in the past and the emphasis is more on profitability and cutting costs to the bone. Making gm a more attractive takeover target and cut costs at the expense of more desirable and reliable products. At the time of Farago's article I was in favor of the Government bailout more to save jobs and suppliers but today I would not be in favor of the bailout. My opinions on gm have changed since 2008 and 2009 and now I really don't care if gm survives or not.
  • Kwik_Shift I was a GM fan boy until it ended in 2013 when I traded in my Avalanche to go over to Nissan.
  • Stuart de Baker I didn't bother to read this article. I'll wait until a definitive headline comes out, and I'll be surprised if Tesla actually produces the Cybertruck. It certainly looks impractical for both snowy and hot sunny weather.
  • Stuart de Baker This is very interesting information. I was in no danger of buying a Tesla. I love my '08 Civic (stick), and it feels just as responsive as when I bought it 11 years ago with 35k on the clock (now 151k), and barring mishaps, I plan to keep it for the next 25 years or so, which would put me into my mid-90s, assuming I live that long. On your information, I will avoid renting Teslas.
  • RHD The only people who would buy this would be those convinced by a website that they are great, and order one sight-unseen. They would have to have be completely out of touch with every form of media for the last year. There might actually be a few of these people, but not very many. They would also have to be completely ignorant of the Hyundai Excel. (Vinfast seems to make the original Excel look like a Camry in comparison.)