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| China's 'Great Leap Forward' — Buying Chrysler? |
By:
Tom Watkins |
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News was made when the long rumored alliance between Daimler-Chrysler was inked with Chery Automotive Company of China to produce a new small car that would be made in China and marketed around the world. The deal still must be approved by the Chinese government and the supervisory board of Chrysler. If the deal is approved by both sides, it would be another "Great Leap Forward" for the Chinese to penetrate the developed markets on a global stage.
Compared to the "Big Fish" — the established automakers — Chery Automotive is a guppy. Based in Wuhu, China, it was formed in 1997 and is owned by the government of Anhui Province. The "Big Fish" of Chrysler was founded in 1925 as a private company in Detroit. Today, Daimler-Chrysler is one of the world's leading automotive companies and employs more than 100,000 people around the world.
Guppies grow up. Chery Automotive has the capacity to produce 350,000 vehicles a year (up from a modest 189,158 vehicles in 2005) and expects that number to increase to 600,000 by 2008. It has exported more than 25,000 cars this year to 30 mostly-developing nations and is looking to expand its global reach.
The rise of the Chinese auto industry has paralleled the double-digit economic growth of the nation since Deng Xiaoping, China's leader during the 1980s, opened the country to the world. When I first traveled to China in 1989, the dominant means of transportation for the 1.3 billion people was the "you can have any color, as long as it is black" Flying Pigeon bike. Today, China is the world's third largest auto market. This is an amazing accomplishment when you consider private ownership of cars was not even permitted until the 1990s.
Now, the Rest of the Story
What if the real story is not that Chrysler is buying a new subcompact they say they cannot make profitably in the U.S., but the beginning of a Chinese Auto Company process to acquire a major U.S. auto manufacturer? What if the impossible isn't?
The home company of Daimler-Chrysler is certainly nervous about Chrysler's rapidly plunging losses of billions of dollars in the North American market over the past year and the excess inventory building up on dealer's lots and spilling over into parking lots at the metro airport. There is fear and speculation in Germany that Chrysler's problems could sink the Daimler-Chrysler mothership. Bodo Uebber, Daimler-Chrysler's CFO, exacerbated speculation when he told Wall Street analysts in 2006, "I am not ruling anything out" in response to questions about unloading Chrysler. Chrysler is disproportionately dependent on the North American market where it sells 90 percent of its cars and it is dragging down Daimler-Chrysler's value.
Could Chrysler Be Chery Picked?
The Chinese have been on a global buying spree and will continue to seek opportunities to invest the trillion dollars it has accumulated in trade imbalances. China's economy is growing at a rate in excess of three times the U.S. economy and the cash is burning a hole in their pocket while they look for a place to invest.
Would such a move set off the same bipartisan maelstrom as China's state-owned China National Oil Company Corporation's (CNOOC) bid to buy to buy an American Oil Company, UNOCAL Corporation, did in 2005?
Clearly, with the Democrats taking over the reigns of Congress and the growing apprehension of China's economic surge, it would raise the nation's collective eyebrows.
However, such a purchase could:
Provide China with a world-wide recognizable brand, something they do not have in any major sector today;
Create an instant Chinese presence in the United States;
Create a distribution system through the Chrysler Dealerships which would help struggling dealers, many that may go under without new product to distribute;
Provide the Chinese with much needed research, development and technology;
Provide the management expertise so the Chinese can navigate the costly and tough process of meeting safety and emissions standards in the U.S.;
Provide a way for Daimler-Chrysler to dump Chrysler at a good return to its shareholders; and
Perhaps preserve much needed high paying auto jobs for more than 100,000 American workers.
Certainly, the top brass at Daimler-Chrysler in both Auburn Hills, Michigan and Stuttgart, Germany will vehemently deny any such talk. However, they dismissed speculation that they were planning to import a Chinese car to the U.S. market, a "speculation" that appears to be a reality today.
In the "world is flat" global competitive auto market, is the unthinkable not possible? Gulp!
Tom Watkins is a business and education consultant. He served as state superintendent of schools from 2001-05. He has a long standing interest in China and has traveled there many times. He can be reached at tdwatkins@aol.com. |
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