DEFUNCT BRANDS DRIVING CHINESE AUTOMOTIVE INNOVATION

If you feel that China is on a global shopping spree, you are not alone. From hotel chain takeover bids to buying landmarks and technology companies in US and Europe, China is looking for strategic buys in almost any industry and the automotive industry is not an exception. In reality, since the great economic collapse of 2008, China has picked up a few automotive brands some of which are now introducing their first all new models under the new ownership!

How did this happen? Well, at the time (starting in early 2008), many carmakers were looking to clear out underperforming brands so they could clean up balance sheets and impress the government and/or investors in order to secure financial support and guaranteed loans needed to survive. The first to go was Volvo. In 2010, Ford was looking to off load Volvo, the last of its non-core brands after it sold off Range Rover and Jaguar to Tata Motor Company of India. Enter the Chinese automobile company Geely. Geely stepped in and paid just $1.8 Billion to steal Volvo away from Ford and inherit the brands intellectual properties and decades of know-how. In 2011, Saab was next. After a brief run at trying to revive the brand, Spyker Cars of Sweden failed to rejuvenate interest in the brand (after buying the brand from General Motors during the financial crisis) and a bankruptcy forced the sales to NEVS, a front company that is owned by the Chinese government. Even General Motors dabbled with the idea of selling its slow-selling Hummer brand to a Chinese buyer, though that deal never came to fruition and the brand was ultimately put out to pasture.

So why is China so desperate to get ahold of foreign car companies? Technology and Instant Market Presence are two of the driving forces. China got a later start in automotive manufacturing than a lot of the other established countries post World War II. For the first forty years after the war, China was producing mostly large industrial vehicles for its own military and civilian use. Many of the designs were based off equipment that was given to them by their Russian frienemies, and the very few passenger cars built were only sold domestically. Then came the 80’s and the large Chinese manufacturing boom sponsored by US and European companies looking for inexpensive labor to enhance profitability and bypassing ever growing regulations and safeguards imposed by the western governments. Money started pouring into China in mounds and domestic consumerism first tricked in slowly and then took off massively in the 90s.

Being a large sprawling country, that meant the need for cars would grow significantly. With a new market opening up, many foreign automakers were eager to get into China early and start building and selling cars. As a protection from foreign domination, China required that all automotive manufacturers entering the market needed to partner with a Chinese entity. This was to ensure that money did not leave the country, and also allowed Chinese companies to get their hands on better vehicle technology. But, many of the cars produced locally for the Chinese market were based on older models to keep costs down and keep the latest technology from getting into Chinese manufacturer hands.

Through these mandatory partnerships, the local Chinese auto manufacturers were able to begin catching up with their foreign rivals although they still lacked access to the latest technologies and innovations. Then, as the global financial collapse loomed and western car companies were forced to look into survival techniques and shedding brands became fashionable, the opportunity arose for the Chinese manufacturers to finally pick up rather shiny but financially failing brands and their technologies for peanuts.

Geely was the first to strike with the $1.8 Billion acquisition of Volvo from Ford. This gave Geely not only better engine technology, but some of the best safety technologies in the world, not to mention access to chic Scandinavian design and Ford’s billions of dollars spent in making Volvo a world class automotive manufacturer. Not too far away, another deal fueled with yet another fascination with what Swedes had to offer was forming. So, the government of Tianjin region, with the help of Kai Johan Jiang, started NEVS (New Electric Vehicles Sweden) and went after Saab’s remains. After numerous legal battles, failed licensing deals, and a false start to production, Saab ceased being a carmaker under Spyker of Sweden and NEVS was able to get its hands on the Saab platforms, but not the GM engine technologies the brand was using prior to the acquisition. This at least gave NEVS a better platform and newer technology from which they can produce a better electric vehicle in the Chinese market.

To us, it’s only a matter of time before the rewards of China’s strategy of purchasing defunct global car brands pays off handsomely. Soon, we will start seeing native Chinese car brands meeting the strict safety and emissions laws of the United States and Europe, and a Chinese automotive invasion, much like what we have seen in the past 30 years with the Koreans, not to mention the Japanese before them dating back to the 1960s is upon us. It’s definitively a brave new world for the automotive industry. Hopefully everyone is ready to discover what’s out there in the horizon right after navigating through the Chinese S-curve ahead!

Alyson Yarberry