Monday, March 30, 2009

Parts of Delphi on the Block? / Thoughts on Chinese Purchase of Foreign Automakers

With all the rumors of acquisitions in the global auto industry that have been floating around recently, I hesitate to report the following. According to a report in today's Caijing, Beijing's city government is putting together a group to buy portions of the assets of Delphi, the US-based auto pars supplier spun off from GM in 1999.

According to the ubiquitous "knowledgeable person" (知情人士) who seems to be the source of all these rumors, Beijing Auto (北汽) is expected to take part, but its participation is not yet confirmed. The only participant that has been revealed thus far is Tian Bao Group (天宝集团), a private auto parts firm controlled by Zhou Tianbao who, according to Hurun, is the 821st richest person in China.

Caijing's "knowledgeable person" pointed out that it is not yet clear which of Delphi's assets Beijing's group intends to buy. (I should also point out that Delphi itself has made no such announcement.)

As would be expected, Delphi's recent fortunes reflect those of the US auto industry as a whole; however, Delphi has had a rough go of it since being spun off from GM, having declared bankruptcy in 2005.

The list of rumors of potential Chinese takeovers of foreign automakers or auto parts suppliers grows longer by the day. Aside from Geely's announcement that it will buy bankrupt Aussie parts supplier DSI, there has been little real news in this space.

I am beginning to wonder, were the Chinese ever truly interested in acquistions of foreign automakers? Or did foreign automakers plant these rumors to pressure the Chinese or appeal to their egos?

I ask these questions because I see little reason for the major Chinese automakers to buy one of these foreign firms. All of the major Chinese players are pouring tons of money into R&D to develop their own technologies. Most of them have also absorbed much technology and knowhow from their foreign joint-venture partners. And some of GM's and Chrysler's best engineers, many of whom immigrated from China, will probably be looking for work soon.

While many Chinese-made auto brands may currently be lacking in terms of quality and safety, these deficiencies, at least among China's major players, should be remedied in short order. The only thing they are lacking is foreign distribution.

The only acquisition by a major player that makes any sense to me would be one that opened up avenues for foreign distribution of, first, foreign-branded cars assembled in China, and eventually, Chinese-branded cars.

Wouldn't the $5-6 billion that a Chinese company could spend for Volvo go a lot further when poured into R&D at home?