Caution urged in bids for US Big Three

• Source: Ce.cn
• [08:34 July 21 2009]
• Comments

Western automakers can find it difficult to blend different cultures and management styles. In some cases, heedless acquisitions can lead to huge losses.

Ford acquired the luxury brand Jaguar with $2.6 billion in 1989, and spent another $6.5 billion to develop and operate its new business.

Then Ford in 2008 sold the Jaguar brand to India's small carmaker, Tata, for a mere $2.3 billion.

Now the future of Jaguar and Land Rover, another brand Tata purchased, remains clouded. Neither brand has contributed profits to Tata.

In 2004, China's Shanghai Automotive Industry Corp (SAIC) paid $500 million for a 49 percent stake in South Korea's Ssangyong Motors. The latter went bankrupt this January, making SAIC's investment a failure.

"SAIC's failure did not indicate that its financial capability cannot support Ssangyong. We should attribute the failure to a misunderstanding of different cultures and management styles," said Chen Qingtai, deputy director of the Development Research Center under the State Council.

"Chinese automakers, before they make an acquisition decision, should think about what might happen over the long-term following the merger," Chen said.

Hui of Sinotrust said other factors should be considered.

"They have to pay more attention to employees, distribution, management and research and development - outside just the payment price - if they really want to buy," Hui said.

Chen suggested Chinese automakers consider paying more attention to comparatively smaller foreign enterprises.

"In such situations, it's much easier for Chinese automakers to deal with a low-profile company," Chen said.

Fu Yuwu, secretary general of the Society of Automotive Engineers, told China Business Weekly that Geely's acquisition in March of Australian automatic transmission supplier Drivetrain Systems International (DSI) is a good example of a smart overseas purchase.

"As far as I know, Geely did not pay very much for DSI. Yet, Geely obtained the core technology of the transmission supplier - a technology that's needed in China's auto industry - through this smart deal," Fu said.

"Chinese companies should make clear that the assets they are considering are assets that they really need," Fu said.