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Why the silence on bids for struggling US auto giants?

By Hao Zhou (chinadaily.com.cn)
Updated: 2008-11-24 19:11

When news that three US auto giants are facing mounting bankruptcy pressures hit the market, many were watching the "golden opportunities" for Chinese automakers to show their muscle. However, China's automakers have kept quiet.

Posting another multibillion-dollar third-quarter loss on Nov 7, General Motors (GM), the largest automaker in the world's No 1 auto market, said it was "cutting to the bone" and warned that it could run out of cash by the end of the year unless it gets a taxpayer-funded rescue from the US government.

On Nov 11, GM's shares plummeted to a 65-year low at $2.76 per share on the New York Stock Exchange and finally closed at $2.92 per share. Based on such a low prices, the total market value of GM is estimated at only around $1.87 billion.

Moreover, GM's board of directors reportedly discussed all viable options including filing for bankruptcy protection last Friday, and the board at last agreed with Chairman and CEO Rick Wagoner that bankruptcy would be disastrous for the company, according to Tony Cervone, GM's Vice President of Communications for North America.

The other two US auto giants, Ford and Chrysler, are no better off than GM. Nonetheless, not one Chinese automaker has surfaced to bid for a stake in the struggling US auto makers.

When asked whether his company was well prepared (to buy into the US auto giants), Zeng Qinghong, the frank and canny general manager of Guangzhou Automobile Industry Group, China's sixth largest auto manufacturing group, said he had never thought about it, today's Shanghai Securities News reported.

Shanghai Automotive Industry Corp (SAIC) suggested it also had no such plans, explaining that it is digesting previously acquired overseas assets, according to the newspaper. In 2006, SAIC and Nanjing Auto together bought out the MG Rover brand and technologies. After that, the China’s largest automaker acquired Nanjing Auto at the end of 2007.

Xu Heyi, board Chairman of China's fifth largest auto group, Beijing Automotive Industry (Holding) Corp, also revealed that his company has no intention of making any overseas acquisitions.

There are two major reasons why Chinese auto leaders not considering overseas buys. The first is that "able to buy" doesn't mean "able to swallow". One Chinese saying is that a camel dying from hunger looks even larger than a strong horse. The Chinese automakers are also suffering from a sluggish market caused by dampening confidence amid global financial crisis. Even if they have abundant cash flow, can they shoulder the substantive employee cost, which is the biggest problem draining the three US camels?

The second is that the price at present is believed not to be the cheapest, which is yet to come when bankruptcy falls on the US auto giants. For most Chinese auto makers, their tightening wallets are keeping them quiet.

Anyway, this won't prevent Chinese automakers benefiting from the current situation. They will not fall short of production facilities, except in their research capacity and technology. As a result, Chinese automakers have started to recruit from overseas.