Friday, February 26, 2010

Kent Rylee Automotive Solutions....A New Name...Same Great Service

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Thursday, February 25, 2010

Hummer rejection: It's all right there in the policy

The recent failure of a Chinese company to buy the Hummer brand from GM highlights an interesting aspect of business-government relations in China.

Nearly every news article on this failed transaction has contained quotes from people at China's Ministry of Commerce stating that Sichuan Tengzhong, the intended purchaser of Hummer, never even submitted an application. An article in today's Wall Street Journal contains a similar quote, and also includes the NDRC, China's main economic planner, in the mix:
On Wednesday, Assistant Commerce Minister Wang Chao said his ministry never received an application from Tengzhong, echoing other comments from the ministry in recent months. An official in the foreign affairs department of the NDRC said the commission also hasn't received any application.

"It looks like no one took responsibility" for the deal inside the bureaucracy, said the person. But since Tengzhong's application "was never formally received" by regulators, "it's not going to be formally rejected."
Seriously? Are we to believe that Sichuan Tengzhong was so absent-minded that they neglected even to fill out the paperwork?

Of course not. We can be certain that representatives of Tengzhong have been living in Beijing for at least the past eight months, doing their best to gain approval for this deal. But since there does not exist a clear set of criteria as to how such an approval decision would be made, discussions had to be conducted on an informal basis.

Though I am privy to no confidential information, I can imagine most of the discussions could be summarized as follows:

Tengzhong: If we apply to you for approval, will you approve it?

Random representative of any number of agencies: Hmmm, that would be, um ... difficult.

Throughout the past year, as I conducted interviews among various auto industry related people, I was continually amazed that no one seemed to have a full picture as to how approvals for business deals should work. Those who appeared confident in their answers often provided me with information that conflicted with what I had heard from others.

It finally occurred to me that I was trying to shoehorn China into my own expectation of how a government should work, and that the lack of clarity in the rules isn't necessarily a bad thing. Of course, it isn't necessarily a good thing either.

Still, as I pointed out in my previous post on Hummer, the deal was unworkable from the Chinese perspective because it did not conform to central government policy. What Tengzhong's representatives were essentially doing in Beijing was asking the Ministry of Commerce, NDRC, et al, to approve their attempt to violate Central Government policy.

China's Central Government may lose the occasional battle, but it ultimately gets what it wants. If you want to know what the Central Government wants, the best place to start is their policies.

Tuesday, February 23, 2010

Why is this Hummer Deal Taking so Long? (Updated)

Last June, news first surfaced that General Motors (GM) had found a buyer to take its much loved and hated Hummer brand off its hands. The prospective buyer, Sichuan Tengzhong, a maker of heavy equipment came from out of nowhere to make a bid for the Hummer brand. (Please see previous posts on Tengzhong here and here.)

Auto industry related people I spoke with in China at the time told me that the CEO of Tengzhong was friends with the heads of a lot of mining companies who are also customers of Tengzhong's heavy equipment. Most of the miners favored Hummers as their personal vehicles, so Tengzhong's CEO jumped at the opportunity to grab the American icon. Of course, this was only hearsay.

As of today, the Hummer deal still has yet to be approved by China's Ministry of Commerce which has the authority to approve outbound investment by Chinese companies. Why is it taking so long?

This article by Patti Waldmeir of the Financial Times contains a few quotes that very nicely sum up the reason:
Producing the hulking Hummer, with its image of wasteful excess, could hardly be less consistent with Beijing’s pro-green automotive policies, said Mike Dunne of Dunne & Co, an Asia-based automotive consultancy: “For them to approve the Hummer deal would be a big contradiction”.

The deal would violate not just Beijing’s environmental goals but also the government’s insistence on consolidation in the Chinese car industry, which has up to 100 carmakers, according to Yale Zhang of CSM Automotive in Shanghai.
Beijing isn't against purchase of foreign auto companies and assets, as can be seen by its support for Shanghai/Nanjing Auto's purchase of MG-Rover in 2007, and more recently, BAIC's purchase of Saab technology and Geely's (ongoing) attempt to buy Volvo from Ford.

Beijing's problem with the Hummer purchase is very simple: it violates policy. Support, or lack thereof, doesn't appear to stem from whether an auto company is state-owned or private (BAIC and Geely, are, respectively, an SOE and a private company), but from whether a potential deal conforms to central government policy. The current policy in force calls for both improvements in the environmental impact of automobiles and consolidation of China's many automakers into fewer, larger companies that will be more competitive on a global scale.

So that's the end of it, right?

Not quite. Apparently Tengzhong remains so keen to get its hands on Hummer that it will try an end-around. This article from Reuters reports:
"Tengzhong has not given up hope yet to win government approval, but buying Hummer through an offshore investment vehicle could be an option if it can't get the green light," said a source close to the deal, who asked for anonymity due to the sensitivity of the issue.
So Tengzhong could, theoretically, establish an offshore entity to purchase Hummer. And as long as Hummer production isn't brought onshore, there wouldn't be a problem. But then Tengzhong would lose the ability to take advantage of China's lower cost labor force. Tengzhong could also run into issues with a sorely disappointed Central Government when trying to import Hummers manufactured abroad.

Furthermore, the offshore route will probably require the use of foreign exchange (which, again, is controlled by the Central Government) to complete the deal -- that is, unless GM could be persuaded to sell Hummer for non-convertible Chinese Renminbi.

If I had to bet, I'd say this deal isn't going to happen.

UPDATE: About 24 hours after I posted the above, official word has come from GM. The Tengzhong deal is off, and Hummer will be wound down.

While this may sound like the end for Hummer, there may still be a faint glimmer of hope. GM has previously said the same of both Saturn and Saab after their respective deals fell through. Though Saturn is indeed being wound down, Saab was rescued at the 11th hour by Dutch investor group Spyker Cars.

And now Sichuan Tengzhong can return to the obscurity from whence it came.

Monday, February 22, 2010

Dr. Iain Corness: AFG meets the Magnate

The Automotive Focus Group Thailand (AFG) held their February meeting at the Centara Grand Mirage Beach Resort, and featured an address by Kevin Gallaghan from Magnate Automotive, builders of what has been dubbed Thailand’s ‘supercar’ by some sections of the media.

The February meeting was also the AGM, and president Mike Diamente (DANA) addressed the members, beginning by reporting how pleased he was to see the membership double during 2009, now being 60 members.

He reported on the survey taken during 2009, with the main needs for the members (at that time) being labor relations, downsizing the correct way and keeping a hold on the cost of logistics.

He also noted that although the AFG is associated with AustCham, there were three months in the year in which there were no Seaboard Sundowners and the AFG was able to arrange and organize its own venues very successfully, including the function rooms at the Bangkok Hospital Pattaya.

One of the new services the AFG had given its members was the AFG directory (organized by Uli Kaiser) which has given the members an e-forum in which the members can update all the others as to the information regarding their business ventures.

Financially the AFG was in very good shape and Mike stated the opinion that for 2010 he is looking forward to the AFG growing in quality and quantity, with a goal to have topics during the year that invoke conversation and learning.
The topic for that evening was the Magnate P708, a concept vehicle which has been made in Chonburi.  Kevin Gallaghan, the founder of Magnate Automotive spoke on the trials and tribulations involved in building such a car, and not just Thailand problems.

The concept has been four years in creation, and the build run will be capped at 100 units over four to five years.  With a carbon-fiber monocoque manufactured by Cobra International in Chonburi, the mid-engined car currently has a Chevrolet Corvette LS7 V8 mated to a 6 speed transaxle, though the future plans include a V10 Lamborghini power plant.

Kevin Gallaghan shied away from the ‘supercar’ tag, saying that he was more interested in producing a comfortable high performance car, rather than something to challenge names like Koenigsegg or Pagani Zonda, both over USD 1 million.  The Magnate P708 he estimated would be sold on the world market at USD 350,000 with the LS 7 engine and USD 500,000 with the Lamborghini engine.

Unfortunately, to receive certification for this car, he is looking at assembly in South Africa, but the major parts would be sourced from Thailand.

Contact with the AFG can be made through the secretary Maurice Bromley, email

Tuesday, February 16, 2010

Fan video from the Bangkok Automotive Expo 2009

Find out what makes this car more special than a Ferrari or a Evo.

Kevin Gallahan:
"It wasn't the start of a company but the start of an idea."
"Here we are today with a high technology, carbon composite chassis building a world class supercar in Thailand"
"The cost of the prototype build has been as high as it would have been anywhere in the world."

Did you know:
The P 708 a collector's car – only 100 will be built.
It's a true racing car.
The price tag is around 15 Million Baht.

For the technically minded, here are some specs:

Height adjustment - front and rear
Magnate SMART Instrument Panel
Magnate Touch Screen Intelligence System w/ Engine Diagnostics and Security features
Bi-Xenon lighting
Apple iPhone Supplied Audio
Air conditioning and heating
Wheels: Forgeline 3 Pc. 20" X 12" rear, 20 x 9" front

Engine: Magnate 7.0 liter Aluminum V8. @ 530 horsepower,
(Optional Magnate 7.0 liter Twin Turbo 750 BHP / 730 lbs-ft of torque)
- Custom 7.0 L aluminum block
- Callies forged steel 4340 crankshaft
- JE Forged aluminum pistons
- Manley 6.125" fully machined 4340 forged steel I-Beam connecting rods
- CNC Porting and polishing of LS3 L92 cylinder heads
- 2.165" hollow stem intake valve
- 1.59" Inconel one piece heavy duty exhaust valves
- High performance valve springs & lightweight retainers
- Three angle valve job, checking of spring tensions & heights
- Computer balanced rotating assembly
- Blueprinted Engine
- Properly sized fuel injectors and high capacity fuel system
- Two Garrett true ball bearing turbochargers - liquid cooled and engine oil lubricated
- Magnate turbo compressor housings & exhaust housings with integral waste gates
- Magnate super high efficiency liquid to air chargecooler
- Magnate high efficiency liquid to air heat exchanger, coolant tank and pump assembly
- Magnate turbocharger scavenge pump & turbo oil drain reservoir
- Stainless steel / ceramic heat shields & stainless clamps
- Port matched LS3 intake manifold
- 90 MM Ported and polished throttle body
- REMUS 304 stainless steel exhaust system
- Magnate 3 year/ 36,000 mile warranty
- Dry Sump Oiling system

Body: A full Pre Preg Carbon Fiber/Aluminum honeycomb body.

Floor: 3 Piece floor with venturi tunnel sections front and rear (including 2 rear
splitters) Pre Preg Carbon Fiber/Aluminum honeycomb structure.

Rear Wing: Optional

Safety: Forward and side carbon/honeycomb crush structures, 4 point seat belts. 1-3/8" diameter 4130 aircraft quality steel rollover hoop.

Tires: Michelin PS2 335/30/20 Rear 255/35/20 Front

Most of the cars suspension components are interchangeable. This includes: billet machined aluminum rear uprights, wheel bearings, wheel hubs, top wishbones, rod ends and spherical bearings, rockers journals, anti-rollbar blades and brake calipers.

The pushrod front and rear suspension has a rocker arrangement, which gives a velocity ratio of 1.2:1. The front rocker has a slight rising rate characteristic for stability under heavy braking and entry into corners. The rear rocker is linear to optimize traction coming out of corners.

The anti-rollbar control front and rear is via a 4130 aircraft quality steel TIG welded bar with an adjustable blade giving six positions of stiffness. Additional rates can be achieved with optional alternate rollbar diameters.

The suspension is fully adjustable with regard to camber, toe, Ackerman and caster and can therefore be refined to suit road or track conditions or driver preference. Steering is via a rack and pinion assembly. The Penske shock absorbers are 3 way adjustable for high and low speed bump and rebound.
There is a dual braking system with individual master cylinders for the front and rear with a driver adjustable brake balance bar, ventilated rotors and aluminum calipers. ?? wheels are recommended as original equipment and attached via a center locking wheel nut device with independent drive pegs on the wheel hubs with an "over center" nut lock safety device.

The body has front mounted water radiator ducted over the top of the car and side mountedoil coolers ducted in through the side of the car that exit through the engine compartment and out of the rear. The engine air inlet duct is centrally located and situated behind the driving compartment. The front of the car has a venturi tunnel in between the front wheels, and venturi tunnels/diffusers in the rear floor for overall downforce. A rear wing is available as an optional extra.

Yes: It has an iPhone slot and a monitor that will show your playlists!

Thursday, February 11, 2010

The sensation from Chonburi: Meet the P708

Join the AFG Meeting on 19 February when Kevin Gallaghan from MAGNATE Automotive will introduce his car company and the P708.

A talk not to be missed!

Friday, February 5, 2010

The Cost of a Camaro in China

The guys at China Car Times posted this entry about the biggest auto discounts in China. Topping the list is the Chevrolet Camaro with a stunning 160,000 RMB (US$23,500) discount from list. The Camaro's base price in the US is only $22,995, which is even smaller than the amount by which it is being discounted in China!

Frankly, I'm not surprised that the Camaro would need to be discounted so much. While it appeals to me as an American who remembers the '68 Camaro, it is hardly suitable for the rough streets of China or for China's fuel-conscious drivers. (Gasoline is more expensive in China than in the United States at the moment.)

What is most interesting to me about CCT's post is how much the Camaro costs in China.

The Camaro lists in China for about $117K, and is now discounted to $93K. That's $93K for a car you can buy in the US for under $30K! So if we take $30K as the cost of a nicely-equipped Camaro, and add to that a generous shipping charge of $10K, we have a car for which GM should want to collect about $40K in China.

Of course, China will want a cut of that as well. Under its WTO commitment, China may charge a maximum import tariff of 25%, which would bring the price to $50,000.

Even with a huge discount, the Camaro's price in China is still $43,000 more expensive than the same car sold in the United States. Why?

Is it demand driven? Is Chevrolet simply unable to build Camaros fast enough that they can get away with charging that much for a car in China?

What is missing here? Why is the Camaro so expensive in China?