China

China's Geely Eyes GM's Saab, Ford's Volvo


First it was India's Tata Motors (TTM) that bought Jaguar and Land Rover from Ford (F) last year. Now it might be the turn of a Chinese automaker to take over some of Detroit's unwanted brands. China's Geely Automotive has put its name into the hat as a suitor for General Motors' (GM) Swedish unit, Saab, The Wall Street Journal reported on May 7, citing unidentified sources. The news comes a few weeks after Geely, the No. 2 domestic automaker, reportedly made a bid for Ford's Sweden-based operation, Volvo.

Is Geely, which trades in Hong Kong and is controlled by Zhejiang Geely Holding, based in the eastern Chinese city of Hangzhou, interested in picking up the Swedish pieces of GM and Ford? Lawrence Ang, an executive director of the Hong Kong-listed subsidiary, says there is no truth to either report. "We are not bidding for Volvo," he says, "and not for Saab." However, Ang does allow that talks might be taking place between Geely's parent company and the Detroit pair. "I can only speak on behalf of the listed company," he says. "So maybe it's the holding company, but not us." Wang Ziliang, spokesman for Zhejiang Geely, did not answer calls to his office.

Despite Ang's denial, some analysts suspect the Chinese company is indeed interested in making some deals. Michael Dunne, managing director of J.D. Power (China) (MHP), notes that Geely is constantly in talks "with several parties not only at the automaker level but at the private equity level, and in talks with lots of people in technology." While Zhejiang Geely is a privately held company without government ownership, Dunne says any foreign acquisition would still need the green light from Beijing. The company may therefore have received instructions to deny the existence of negotiations until the government is fully on board with the transaction, he says.

A deal with either Saab or Volvo would certainly help Geely get a leg up on its domestic rivals. The Swedish carmakers could provide superior technology and marketing know-how, and could also provide Geely with an eventual platform from which to sell into Western Europe. "Geely is looking at how to move upscale in terms of technology, quality, and image, and this may be a one-time opportunity to buy assets at a low price," says Dunne. Last year the group's domestic sales only grew 4% to 166,265 units. Total auto sales for 2008 were $1.2 billion, up 16%.

Heading Down a Bumpy Road?

China's experience purchasing foreign brands to jump-start its forays into overseas markets has met with little success. In 2003 Huizhou-based electronics group TCL acquired the TV operation of France's Thomson and the following year took over the cell-phone business of Alcatel. Neither partnership delivered on its promise for the Chinese company. In 2005, Lenovo bought IBM's (IBM) PC business in a much trumpeted deal that would establish it as China's first truly global brand. But in February the company replaced its CEO, former Dell (DELL) executive William Amelio, with his Chinese predecessor Yang Yuanqing, and signaled the company would refocus more on domestic sales. The 2004 purchase by Shanghai Automotive Industry Corp. of a 51% stake in Korean automaker Ssangyong Motor ended with the Korean company seeking bankruptcy protection in January.

The disappointing results of many Chinese acquisitions overseas might make it harder for Geely or any other automaker from china to close a deal with Detroit. Talk of the Chinese coming to the rescue is just wishful thinking, says one industry analyst. "Right now, the foreigners are thinking the Chinese will pay huge prices and life will be great," says the analyst, who asked not to be named because of company policy. "But I don't think the government will allow it unless it's real cheap."

Working on its own, Geely has had some success in emerging economies, with the company selling in markets like Romania, Pakistan, Bangladesh, and Peru. It exported 37,940 autos in 2008, an 80% increase over 2007, but that's just a fraction of the nearly 140,000 cars exported by domestic rival Chery Motors, which has global ambitions of its own. Geely also lags behind BYD, which has rolled out the world's first plug-in hybrid.

More recently, the global recession has put a damper on Geely's exports. In the first quarter of 2009, overseas shipments plunged 83%, to just 1,373 vehicles in 2009. Still, Ang is confident the company will achieve its export target of 40,000 in 2009 by penetrating new markets in Southeast Asia and Latin America.

Balfour is BusinessWeek's Asia correspondent. With Ian Rowley in Shanghai

Frederik_balfour
Balfour is Asia correspondent for Bloomberg Businessweek in Hong Kong.

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