Chrysler deal to aid carmakers' global plans

PUBLISHED : Thursday, 01 March, 2007, 12:00am
UPDATED : Thursday, 01 March, 2007, 12:00am


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US firm is the biggest target so far as mainland players look to overseas acquisitions

Mainland carmakers' possible interest in buying the struggling United States-based Chrysler unit from DaimlerChrysler, as reported yesterday, is just their latest but biggest move in three years of reaching into the international market by acquiring overseas assets.

Shanghai Automotive Industry Corp (SAIC), China FAW Group Corp and Chery Automobile, along with other carmakers, have been in talks to buy all or part of Chrysler from Germany's DaimlerChrysler, according to sources.

Chrysler, the third-largest carmaker in the US, lost US$1.5 billion last year and is cutting 13,000 jobs. Earlier reports said General Motors had also entered early talks with Chrysler for a possible acquisition.

'In the longer term, [mainland carmakers] are definitely interested in expanding in the global market and buying overseas assets is one of their choices,' said Wilson Liu, PricewaterhouseCoopers' Greater China automotive leader.

'Some Chinese automakers are eligible to acquire global auto assets after rapid development and expansion in recent years.'

Last year, SAIC bought the intellectual property rights for two models from MG Rover, while Nanjing Automobile bought the rights to the MG Rover brand.

Sources said acquisition moves by mainland carmakers matched a trend in both the US and mainland markets.

Consolidation was required in both countries with too many carmakers in the mainland and their counterparts in the US experiencing slow growth, they said.

Even so, mainland manufacturers did not yet have the financial resources to buy global carmakers without central government support, analysts said.

'In the case of Chrysler, first it has a comprehensive union and, second, the preliminary estimation of its health care and welfare costs is about 20 billion yuan,' Fitch Ratings analyst Matthew Kong said.

'How Chinese carmakers could cover those costs is a key issue.'

Jilin-based FAW told China Daily yesterday that it did not have adequate capital to buy Chrysler and that it was not in a position to turn the US car manufacturer around.

Sources said Chrysler hoped to sell US$7 billion worth of assets.

The prospects of mainland carmakers successfully running overseas units have improved over the past few years compared with when they were state-backed companies, as their mainland managers are now much better qualified.

'In the minds of management now, to earn money is more important than gaining market share around the world,' a source said.

SAIC, the mainland's largest carmaker, has the most experience in making overseas acquisitions and would be a frontrunner in the country's car industry to take over Chrysler, sources said.

SAIC spokeswoman Zhu Xiangjun declined to comment.