Chinese Carmakers Target Volvo and Saab

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The record of Chinese automakers doesn't offer too much encouragement, either. Companies have certainly been active. In June, for instance, Sichuan Tengzhong reached a tentative agreement to buy GM's Hummer brand, although negotiations are still under way. In 2005, Nanjing Auto bought British marque MG Rover and is now making some attractive cars. In 2004, Shanghai Auto spent more than $500 million to buy 51% of Korea's Ssangyong Motor, but in January Ssangyong filed for bankruptcy protection.

Advanced Skills Needed

Analysts point out that while marquee deals can be successful, making them work may be even tougher for Chinese automakers, given the challenge of bridging the large cultural and legal differences between China and elsewhere. For instance, following news that Beijing Auto was not going to bid for GM's Opel division, University of Maryland business school professor Anil K. Gupta and Haiyan Wang, managing partner of the China India Institute, wrote in BusinessWeek that the Chinese company was not ready to manage an overseas operation. That would require "the ability to manage a horizontal organization; to connect and coordinate without a heavy reliance on command and control; to navigate cultural, linguistic, and political diversity; and to understand and serve the needs of a diverse set of customers in heterogeneous foreign markets," wrote Gupta and Wang. "As a domestically focused enterprise, Beijing Auto has not had the opportunity to build any of these capabilities."

Smaller, more focused deals for core technologies may make more sense. Leah Jiang, an analyst at Macquarie Securities (MQG.AX), says that Geely's acquisition of DSI, an Australian maker of automatic transmissions, is an example of such an acquisition. She also points to parts maker Weichai's deal for French engine maker Moteurs Baudouin. "These [types of] companies could help Chinese manufacturers break through major technology barriers, [but] the size of the acquisitions will be relatively small," she wrote in a recent industry report. By contrast, some reports put the price of Volvo at $2.1 billion.

Meanwhile, it's perhaps worth recalling that the early international success of Toyota, the world's biggest automaker, and, until recently, the most profitable, stemmed from producing competitive exports rather than acquiring foreign brands. Critics said that Toyota and other Japanese car companies benefited from a weak yen and helpful government. In theory, so could the Chinese. Yet a report on Bloomberg this week pointed out while China's auto market is five times as large as India's, China trails in terms of exports. Moreover, while China's exports slumped 60%, to 164,800 units, between January and July, India's rose 18%, to 229,809. In both cases, the figures would be even smaller if vehicles made by foreign automakers were excluded.

Rowley is a correspondent in BusinessWeek's Tokyo bureau.

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