Chinese buyers eye troubled Detroit firms

A large number of cars stockpiled at the Port of Long Beach, United States. CFP

DETROIT: Bankruptcy is the buzzword for two of the three big US automakers and many auto-related companies here.

"The whole state (of Michigan) is for sale," said Wei Shen, marketing manager of mid-luxury crossover vehicles at General Motors.

Ailing US auto giant GM plans to sell off or wind down its Hummer, Pontiac, Saab and Saturn units.

A number of Chinese companies are among the international buyers casting their eyes on these brands and the parts suppliers that cannot make ends meet.

"It is a good time for Chinese companies to buy," said Shusheng Wang, co-director of the Global Trade Group of Butzel Long Attorneys and Counselors.

"Still it is hard to find what they really want," added Wang.

Some big Chinese companies are in the "Motor City" taking a look at brands GM may soon put up for sale. Assembly lines are also on their shopping lists.

An electronics company in South China has quoted a high price to GM for Saturn and China's Geely Automobile Holdings reportedly made a bid for Saab.

But auto analysts say that GM's brands are beyond the reach of the Chinese companies putting out feelers in Detroit because of different management strategies between Chinese and American companies.

"Chinese investors are not comfortable about producing vehicles in the US. When they come for an acquisition, they are thinking about moving the assembly lines back to China," said Wang.

Wang's law firm acts as an agent for some 50 Chinese companies operating in Michigan.

The Chinese companies' approach - buying one brand and an assembly line and producing cars in China - may be unfeasible.

GM has never sold its brands in the past, preferring to shut them down because the automaker did not want to help build up its rivals.

But now the automaker is facing bankruptcy (a possibility that moved closer to reality after it reported a $6 billion first-quarter loss) and may have no choice but to sell. Revenues plunged nearly 50 percent in the first quarter and the company burned through $10.2 billion in cash. If the automaker cannot secure labor and debt concessions before the June 1 deadline, the most likely bankruptcy option involves splitting off its good assets and leaving its bad assets in federal court.

Chinese companies may be last in line on the list of potential buyers of GM's brands, however, since GM would probably prefer selling to American and European bidders.

It's almost impossible for a Chinese buyer to purchase a vehicle brand with an assembly line since brands often share factories in the US auto industry.

At AutoAlliance International Inc, a Ford-Mazda joint venture in Flat Rock, Michigan, the Mazda MX-6 and 626 and the Ford Mustang roll off the same assembly line.

Butzel Long Attorneys and Counselors' Wang recommends that Chinese auto producers learn to share assembly lines with other companies if they intend to purchase a US auto brand.

Before filing for bankruptcy protection, Chrysler hosted Chinese firms such as Beijing Automotive Industry Holding Co, Tempo International Group, Hawtai Automobiles and Chery Automotive Co at its Auburn Hills headquarters in February for five days, offering to sell engines, transmissions, vehicle lines and its Newark paint shop. But the efforts failed.

Japanese and European automakers with a piece of the US auto market, such as Toyota, got in by building their own manufacturing facilities in the US rather than buying existing ones.

But this may not be a realistic option for Chinese companies.

"Few Chinese corporations would dare build an auto factory in the US and try to cut a slice of the US market. They've got a long way to go," said Wang.

As Detroit crumbles in the economic crisis, Chinese parts suppliers, including Fuyao Group (the world's fourth largest producer of automobile and architectural glasses), Qinchuan Machine Tool Group Corp, Tipo, THB Group of Henan and SG Automotive Group Co Ltd are getting caught too.

GM said it will close 13 assembly plants by the end of next year, which could mean a big drop in orders for the Chinese part suppliers.

But the Chinese companies appear to be holding steady by cutting workers.

"As far as I know no Chinese companies have made an exit. They think that things will get better as long as they hang on here for one or two years," said Wang.

The lawyer said that Chinese companies wanting to acquire US companies in Michigan may have to do so by the end of this year.

"The currently-ailing US companies will not sell themselves at bargain prices if they get through the hard times to next year," said Wang.

Chinese companies may not be able to buy assembly lines and brands in Michigan but they could pick up technology, engineers and equipment.

Many parts of Michigan are opening their arms to foreign investment, including from China. When BeijingWest (a joint venture between Tempo, the Beijing government and a third Chinese company) came to Detroit twice to buy Delphi Corp's braking and suspension unit, Wayne County Executive Robert A. Ficano helped set up the meetings for the two companies' CEOs.

"At this time the priority is to save jobs," Ficano said.

Ficano has been on four trade missions to China, visiting Chongqing, Wuhan, Wuxi, Nanjing, Beijing and Shanghai. His fifth trip is due this fall.

Wayne County, which includes Detroit, hosts about 50 Chinese companies.

Ficano admitted that he can sense tension as foreign investment pours into his county.

"But we know that we are competing globally," he said.

"The auto industry faces its challenges but it will be able to come back. We still have the best engineering in the world. We still have the technology that the world wants," he added.

But James R. Fouts, mayor of Warren, Detroit's largest suburb, is not as confident. When Chrysler announced that it was filing for bankruptcy, the mayor called for a new municipal requirement; all city workers who don't drive an American car must buy one or find a new job.

Chrysler has two factories in the suburb and is its second largest employer. GM owns its biggest commercial property.

Unemployment in the suburb is around 20 percent and at least one-third of its 138,000 residents rely on the auto industry to make ends meet, according to officials. For many people in Warren Fouts' decree is about more than consumer patriotism.

He called the US auto industry an endangered species.

"If people don't buy cars from the big three, it will make Michigan grieve. I don't want to depend on China and other countries to make our cars," he said.

GM plans to import vehicles made in China starting in 2011 and expects to import 51,546 in 2014.

GM's plan has been criticized by Gary Peters, a Michigan member of Congress, and the United Auto Workers for failing to keep American jobs.

(China Daily 05/25/2009 page9)