Chinese automakers eye larger global pie

When news of Chinese auto-maker Great Wall Motor’s interest in acquiring the Jeep brand hit the headlines on Monday, it looked as if an action-packed week was in store.

However, the entire drama came to a rather tame end in no time when Jeep’s owner, Fiat Chrysler Automobiles (FCA), made known that there was no such overture from the Chinese company. Great Wall subsequently clarified that it was researching FCA but did not really go beyond this in terms of reaching out to its top brass for any buyout talks.

While at one level, this was a damp squib ending to what could have otherwise been an interesting saga, Great Wall’s intent cannot be dismissed so lightly. It is also a clear reflection of the growing global ambitions of Chinese auto-makers, who are keen on spreading their wings beyond their country.

There is already a success story in Geely’s acquisition of Volvo Cars five years ago. The levels of synergies achieved since then have been astonishing and the stage is set for Volvo Cars to grow even stronger as Geely continues to pull out all stops through financial support.

In the case of FCA, it is really no secret that the company is open to a further consolidation, which can take place by way of either a merger or an acquisition. Its top brass believes that this is the only way the entity can hold its own in a rapidly changing world where automakers are going to be under all kinds of pressure ranging from high costs to new mobility threats from the likes of Apple and Google.

This explains why FCA reached out to General Motors and explored the possibility of teaming up but nothing really materialised eventually. In the case of Great Wall, there was more proactive interest except that it was a classic case of jumping the gun and then being forced to climb down.

This by no means should mean that Great Wall will not make another attempt at a bid for Jeep or even extend the scope of this buyout to include FCA. Jeep is its most valued brand, which accounts for nearly a third of total sales with 1.5 million units annually. Great Wall is China’s largest SUV player and would love to have a brand like Jeep in its portfolio even while the acquisition will cost a bomb.

Great Wall’s annual report for 2016 has an interesting section called ‘2017 prospects’ where there is clearly a lot of emphasis on research and development (R&D). While indicating that it will set up a couple of facilities in China, there are others planned in Yokohama (Japan), Bengaluru (India), Hamburg (Germany) and Arcadia in the US.

The company then goes on to state that it will implement a ‘goal-oriented’ operation model and develop an ‘extensive R&D’ approach aimed at achieving optimal efficiency. Additionally, it will also ‘insist on implementing a lavish’ R&D spending strategy to integrate global resources, thereby ‘cultivating world-class technology development capability’.

On its technology direction, Great Wall states that for traditional cars, it will work on lightweight models with intelligent features and lower fuel consumption. Plans are also underway to develop a pure electric sedan as well as a hybrid SUV model.

For a country that is miles ahead of the rest as the world’s largest producer of cars, it is only natural that China wants its automakers to take the next big leap. Be it SAIC Motor, Dongfeng Motor, Changan Automobile or Great Wall, the idea is to go global aggressively.

And some of these companies have thrown a lifeline to other big brands in helping them stay afloat. PSA Group of France was in dire straits till a few years ago and it required a Dongfeng to pump in resources as part of the revival process.

The French government also did its bit but PSA owes it to its Chinese ally for getting a second lease of life. The two will now look at working jointly in the ASEAN region and while there is no indication of Dongfeng pursuing PSA to India, things may well change in the future.

Likewise, SAIC has been a loyal ally of General Motors and this relationship could grow beyond the boundaries of China where it is already very successful. GM may have shut down operations in India, Russia and Indonesia but is a huge player in China (after Volkswagen) thanks to local partners like SAIC.

During the global slowdown of 2009, GM had its back to the wall and all this naturally impacted its India business plans. This was the time SAIC entered the picture and the two formed a joint venture to take the story forward. Nothing much materialised eventually but, today, SAIC is back in India after taking over the assets of GM’s Halol plant in Gujarat.

Reports have been doing the rounds that the company will eventually take charge of the operations at the other facility in Talegaon near Pune but perhaps it is too early to say if this will happen. Though SAIC will go flat out in making a mark in India even while the going will not be easy. Likewise, Changan and Great Wall are also keen on entering the Indian market though it remains to be seen if some of these business decisions could be impacted by the current face-off between India and China. By the end of the day, politics will have a say in economics.