China’s big deal spree keeps on motoring
Executives at Chinese carmaker Great Wall Motors clearly didn’t get last week’s memo from China’s State Council curbing overseas investments by domestic companies after an unprecedented deal spree. In a statement that tests the boundaries of plausibility, the Baoding-based company has said it is considering a bid for Fiat Chrysler, one of America’s big three car manufacturers.
The prospect of a relatively unknown Chinese carmaker getting its hands on one of the biggest names in the industry threatens to send the car-making world into meltdown.
Although a ferocious overseas shopping binge in recent years by some of its top companies has seriously boosted China’s international standing in deal-making circles, it is yet to land one of the truly big global brands. A takeover of Fiat Chrysler would be game-changing for China Inc. Although Fiat Chrysler only produces around half the cars that each of the big four manufacturers – Volkswagen, Toyota, Renaultnissan, and General Motors – churn out every year, it is still made up of some of the great car names.
As well as Fiat, Chrysler and Jeep, the company owns the Alfa Romeo, Dodge, Lancia, and Maserati marques. It also owned Ferrari until last year.
By contrast, Great Wall only just scrapes into the top 20, according to JATO Dynamics. It sold 226,000 vehicles in the first three months of the year, compared to Fiat Chrysler, which sold 1.2m cars.
Great Wall may have some big state backers but swallowing Fiat Chrysler would cost more than €20bn (£18.3bn), and for a company that made $1.6bn in profit last year, there are serious questions about whether it could muster the financial muscle for a deal.
That’s not to say a deal is completely bonkers. With sales waning in the US, a takeover could provide the lifeline Fiat Chrysler has been craving for some time. Great Wall, meanwhile, is desperate to expand, particularly in the sports utility vehicle (SUV) market where margins are higher and the audience more global.
But financial hurdles are minor compared to the political obstacles that are sure to greet any Chinese attempt to own such a big slice of corporate America. Such a move would surely be met with incredulity by Donald John Trump.
Car-making in particular has been a target of the president’s erratic protectionist rhetoric. The industry is one of America’s biggest employers and Trump has lashed out at carmakers for offshoring production to Mexico and threatened to impose tariffs on imported vehicles.
In response, Ford scrapped plans to build a $1.6bn plant in Mexico and expanded an existing factory in Michigan instead. General Motors and Toyota have also found themselves in the firing line. It is almost impossible therefore to imagine him sanctioning the sale of a company that employs more than 80,000 people – roughly a third of its workforce – in scores of US factories, especially to the Chinese.
Trump seems to have a real issue when it comes to America’s trade imbalance with China, portraying Beijing as an economic bogeyman stealing the jobs of honest, hardworking Americans.
That’s not to say Fiat Chrysler couldn’t be bought by someone. On the contrary, it’s effectively been up for sale for the last two years, searching for a buyer to cut the development costs of electric and self-driving cars. It was rebuffed by General Motors in 2015 and has made overtures to Volkswagen.
With few other options on the table, Fiat boss Sergio Marchionne may even be tempted by the prospect of a Chinese marriage that would propel the carmaker’s access to China. The Chinese market became the largest in the world several years ago.
After all, the experience of Volvo suggests a Chinese takeover could even be beneficial to its prospects. Geely has revived the Swedish carmaker since its shock purchase in 2010, investing billions in new models.
Still, a much more credible rumour is that Great Wall has its eyes on the Jeep brand rather than a move for all of Fiat Chrysler, as a way to turbocharge its big ambitions in the SUV market. Fiat Chrysler has become a much bigger force in the SUV market since Fiat’s rescue of Chrysler in 2009 with Jeep sales jumping from 900,000 to 1.4m, and Marchionne suggesting that the brand could one day account for one in five of all cars sold globally. That would certainly be much less controversial, but while the Donald remains in power Fiat Chrysler is unlikely to end up in Chinese hands.
‘With sales waning, a takeover could be the lifeline Fiat Chrysler has been craving’