Will GM Become a Chinese Brand?

Monday, July 7, 2008 7:29

Five years ago, when the major automotive firms were ramping up their China based production and sales, I began to theorize that within 10 years one of the Big 3 would fall.

That in the face of global competition, one of the firms would find themselves unable to compete, and at that time that also included the possibility that the firm to fall would be scooped up by a Chinese firm.

2 years ago when Chrysler was on the chopping block I knew that there would be China based bidders who would throw their hat into the ring, but it turned out that the Chinese were uncompetitive in terms of their financial bid and the value they would add.  However when reading the MSNBC article GM looking at job cuts, sale of brands I get the feeling that we are about to see a Chinese bid that wins.

SED Negotiations and agreements to open investment up between the countries aside, the fall of the USD almost ensures that a foreign group will win the bid … and China’s RMB moving from 8.28 to 6.8 give it a huge leg up over the Euro.

Additionally, with firms like Anhui Cherry already showing at the Detroit Auto Show, and China’s obvious desire to be a global player in the auto market, I am beginning to wonder if we are about to see a big 3 auto maker be purchased in whole/ part by a Chinese firm looking to expand

Any thoughts out there? Anyone think that if GM were bought up by a Chinese firm they would be able to succeed in the press battle that would surely be launched on CNN? Would they work within the unions, or go the Japanese model?

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5 Responses to “Will GM Become a Chinese Brand?”

  1. Paul Denlinger says:

    July 7th, 2008 at 7:30 pm

    Of course any Chinese buyer would have to go the route of the Japanese and insist on union-free workplaces. The problem is that the Chinese makers are not masters of “kaizen” or incremental quality improvement the way Toyota, Nissan or Honda is. Instead, they will try to cut costs further, which would mean moving even more manufacturing offshore.

    And when it comes to marketing and PR, the Chinese are unfortunately, definitely masters. Marketing, advertising and PR are very tightly bound with culture, and there are no signs that the Chinese are ready to get down and dirty with western advertising agencies and let them do their work.

    So no, I’m not optimistic about better understanding between China and the west. I see it getting worse.

  2. Rich says:

    July 7th, 2008 at 9:10 pm

    Hey Paul

    Thanks for the comment. When the Japanese firms were coming into the States for the first time, how much farther along were they?

    SAIC and Cherry have done a pretty decent job of poaching former American auto executives in driving some of the issues you mentioned. Could that be the answer? Or is that also a reason why the Big 3 have suffered?

    Hope all is well
    R

  3. Paul Denlinger says:

    July 8th, 2008 at 6:33 am

    Hi Rich–

    When the Japanese first came to the US, they first focused on making sure that their quality systems were in place. The Japanese have a reputation for being real sticklers about getting things right, and even get downright anal about processes, especially Toyota and Honda.

    The other thing about the Japanese auto-makers was that they did not pretend to understand marketing and advertising, so they largely trusted the recommendations of their dealers and ad agencies. Needless to say, those dealers who jumped on the Honda and Toyota bandwagon early on have done very well, and are enjoying their retirements.

    Chery is doing something like this in their deal with Chrysler. Basically Chrysler will help sell Chery cars, and Chrysler will transfer their knowledge of the sales and marketing process. I’m sure that some smart Chrysler dealers will see the writing on the wall and make the jump over to Chery.

    A really excellent book about the success of Honda and Nissan in the US came out in 1987 called The Reckoning, and was written by David Halberstam. Definitely worth a read.

    If there is one depressing lesson about the US auto industry, it’s that in the pursuit of quarterly profits, the Big Three always invested only for the short-term. Both the management and the unions wanted to squeeze the last dollar out of these formerly great American companies, to the point that the most profitable arm of GM became GMAC, its finance arm, not auto manufacturing. Now, with all the bad credit floating around, a lot of those auto loans have become more questionable.

    For Americans, it’s a sad sad story.

    Thanks, all’s well. Hope to catch up with you sometime soon.

  4. Paul Denlinger says:

    July 8th, 2008 at 6:52 am

    Just wanted to add that the keys to success in the auto industry are:
    — Good design and engineering
    — Good quality
    — Good relationship with the dealer network, and listening to their suggestions

    At different times, the Big Three in the US have always tried to usurp the roles of the dealers. In their corner offices, CEOs would think “Wouldn’t it be good if we could sell directly to customers?” The dealers have always felt that they would be squeezed out. A relatively little-known reason for the success of the Japanese makers was that they put a great deal of emphasis on pampering their dealers, and never tried to squeeze them out.

    It will be very interesting to see how Chery treats their US dealers. It will be an excellent barometer for their future success.

  5. Rich says:

    July 8th, 2008 at 9:05 am

    Paul

    All fair points, and where I would press it a little further is that I think a Chinese firm buying into a Big 3 may be able to get much of what you say they need. Humvees, and other products that missed the market aside, the Big 3 have cars that meet the 3 things you mentioned above..

    where I think it gets interesting is that many of China’s brands are doing a lot of research in electric/ hybrid cars… something that may match well (assuming it is successful)?

    have a good one, and let me know when you are in town (I am not going anywhere for a while).

    R