Keith Fitz-Gerald

Is China Detroit's Lifeline?

    Tweet This

Free Trading Guides

My experience suggests that the biggest changes and the most dramatic expansion will occur when Chinese executives become comfortable in assuming leadership roles that push them far beyond the manufacturing stage of the value chain and into product development.

And while 10 years ago I thought that process might take another two decades, the financial crisis has dramatically accelerated the timeline. And we're seeing that now -- particularly with China's automaking industry.

China's Shopping List

Just this March, Geely Automobile Holdings Ltd. (GELYF) bought Australia-based Drivetrain System International -- a supplier for Ford, Chrysler and Ssangyong Motor Co. Ltd. -- for $42.55 million. More recently, the company has denied rumors that it's ready to purchase Ford's Volvo passenger car unit for between $1.3 billion and $2 billion, which would represent a catastrophic loss for beleaguered Ford, which paid $6.45 billion to buy Volvo in 1999.

Three of the most prominent Chinese car makers -- Geely, Dongfeng and Chongqing -- are reportedly in the hunt for GM's Saab and Opel units in deals that could be worth as much as $200 million. Clearly, the Fiat SpA (FIATY) transaction complicates things a bit, but there's still plenty of room for surprises.

Said another Chinese executive, who also chose to speak anonymously: "We view [buying parts-makers, for now] as a viable alternative to acquiring good brands that have suffered from terrible management. We don't know enough -- yet. We have to build our competency in the meantime."

And you can bet that they'll do just that -- build a world-class "competency" that just adds more muscle to the growing China business juggernaut.

My contacts tell me that transmission systems, hybrid technologies and power-gearing systems are at the top of the list in the immediate future. Actual manufacturing plants and assembly lines are running a distant second until Beijing gets comfortable with the suitability of overseas manufacturing as part of China's business value chain.

Many Westerners who recall the Japanese acquisition spree of the 1980s will not react favorably to this. But it's not a one-way street. As troubled as Detroit is, it's clear that their representatives have been working quietly in China for months now, which is entirely logical. Chinese companies remain some of the healthiest on the planet in financial terms, and most continue to demonstrate strong domestic growth despite the softness of the overall global economy.

It also doesn't hurt that the Chinese government is backing many of these initiatives. China has a world record $2 trillion in foreign reserves, which gives it a lot of financial credibility with any deals that country's companies may wish to pursue.