Wall Street Gives Cred To China Automakers Geely and BYD

Posted by: David Kiley on September 22, 2009

China automakers are beginning to gain more credibility in terms of their future in the West.

Goldman Sachs is considering an investment in Geely Automobile Holdings Ltd. And there is no question that in investment by Warren Buffett’s Berkshire Hathaway has given credence to what Chinese battery maker/automaker BYD Co. might achieve in the export market.

This is a big change, as Chinese automakers up to now have been noteworthy for their peculiar decisions regarding export partners, which has made it hard to take them too seriously outside of their home market.

Chinese automaker Chery, for example, linked with automotive entrepreneur Malcolm Bricklin, who had founded Yugo America and was a co-founder of Subaru of America. But Bricklin, say most analysts, does not today have the weight or credibility, nor the organization to pull off a major launch of an unknown brand.

Nanjing Automobile Group started a project to build British MG vehicles in Oklahoma in 2007, a project that seems to have gone off the rails entirely.

“No question that the Chinese have acted like amateurs so far when it comes to tapping the North American market, and the rumblings they have made so far,” says independent marketing consultant Dennis Keene. “With all the veteran talent walking the streets these days, and the firms that can help you do it right, the Chinese have been baffling with their pattern of squirrely behavior and decisions.”

The involvement of veteran advisers from Berkshire Hathaway and Goldman Sachs put these companies on a different track.

Geely is considering an offer to Ford Motor Co.’s for its Volvo unit, possibly in partnership with a Chinese state investment company, Geely Auto Chief Executive Officer Gui Shengyue said Sept. 8. An investment by Goldman would make capital available to aid the bid, the Wall Street Journal said. Ford is said to be seeking $2 billion.

A Volvo deal may help Geely meet founder Li Shufu’s target of getting 66 percent of sales from overseas by 2015 compared with 5 percent in the first half.

BYD’s investment by Buffett came through selling 225 million new shares to Berkshire’s MidAmerican Energy Holdings Co. for HK$8.00 each. Chief Executive Officer Wang Chuanfu said at the time that the investment would help boost the automaker’s profile overseas.

Geely’s approach to buying a Western brand is so far different from from other Chinese automakers, though a Chinese heavy equipment maker is in the midst of trying to buy Hummer from General Motors.

Last January, executives from BYD and Brilliance, for example, said they would rather start their brands from scratch in the U.S. than buy a brand such as Saturn. Saturn, though, say many analysts, was the perfect business for one of the Chinese to buy. The brand has recognition, a top-flight dealer network and is in need of new products after 2011. A Chinese automaker could have filled the product pipeline after GM stops supplying vehicles to the unit.

That, says some analysts, is what scared off Chinese automakers. Knowing the GM product flow was going to dry up on a date certain would put pressure on a Chinese automaker to Federalize its own vehicles to meet all U.S. standards. If they failed to get that done, dealers would be without new products, creating a fiasco.

Standards for safety, quality and emissions are very different in China than in the U.S., and there is no Chinese automaker that is yet ready for prime-time in the U.S. Quality of Chinese vehicles, for examples, is often compared with where the U.S. was 20 years ago.

No doubt that Geely can learn a few useful things from both Volvo and Goldman Sachs about making it in the U.S.

Reader Comments

Snoz

September 23, 2009 4:20 AM

A Wall Street Analyst is a used car saleman first and last. He will sell your grandma down the river if his commission is right and market her with a triple A rating seal of approval. A candid soul would even say an Analyst is a pimp dressed in Armani. Having been victimized by another kind of pimp of the 1800s, the cautious Chinese have learnt well from the Japanese auto company's experience in North America. There were several good reasons that Toyota, Mitsubishi, Honda and Datsun did not make a bid for defunct AMC, Studebaker or Chrysler several decades ago. Without elaboration, those reasons have to do with brand identification, quality control, and US politic. From the Chinese's viewpoint, if Volvo, Saturn, and Hummers were as great a brand as its owner claimed, surely the Japanese, Korean, or European would have been first in line. Contrary to what Wall Street's analyst promotes as a good buy, these American brands are in the hospice having been mismanaged by old farts using fatally flawed business philosophy.

Karlheinz

September 23, 2009 5:22 AM

Could Goldman Sachs earn fees in the sell of Volvo from Ford?

So they even finance this deal themselves?

Then they earn fees from Geely?

So what useful things can Bankers tell Geely? Anything?

Finally nobody seems to want Volvo - a company not making money since Ford purchased them.

David - I really like reading about banks nowadays - it`s better than comedy!

Reuben Schwartz

September 29, 2009 11:13 PM

There is no doubt that Geely is set to follow and surpass BYD-style growth over the next 2 quarters.

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