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The prospects for Chinese companies providing Chrysler’s new private equity owners with an easy exit opportunity appear to be limited for now, according to an initial probing of that market. Earlier this week commentators had identified Chinese companies as a possible medium-term exit for Chrysler.
However, an executive at Guangzhou Automobile Industry Group (GAIG) said that the company plans to keep a close eye on Cerberus’ acquisition of Chrysler but only in the hopes of picking off any disposal opportunities that may emerge. The executive, who is responsible for GAIG’s development strategy, said that the company had so far steered clear of Chrysler as a standalone acquisition target because of its large size, and likely will continue to do so. He did say that GAIG, which is one of the three biggest auto makers in China, would be interested in any plans that Cerberus has to sell off parts of Chrysler.
Likewise, a senior executive at First Automobile Works (FAW) Group, China’s largest vehicle manufacturer, said the firm had a specific interest in acquiring Chrysler’s sedan car brand if its new owners decide to sell off parts piecemeal. It would not be interested in its truck manufacturing division nor, more generally, in any single production line or key part.
“We will be interested in buying an integration of a brand, from design, technology to the brand name,” said the FAW source. “We are not likely to buy single production lines or key auto parts production.”
Still, it is hard to imagine that China, or other developing markets like India, will not feature prominently in Chrysler’s future, whether as an exit or simply as a production base. The GAIG executive revealed that the Chinese company had cooperated with Cerberus on other projects and for this reason has established a direct line of communication with it.
“Cerberus knows us and they will come and talk to us if they have any proposal,” said the executive. “We’ve been watching the whole process of the Chrysler sale all the time and we will go on paying close attention to Cerberus’ further restructuring and steps towards Chrysler after takeover.”
FAW has ties of its own with Chrysler, having acquired its engine production line back in the 1980s and later on, according to the FAW source, having tried to buy its integrated sedan car production assets. However, the source said that Chrysler had asked for a very high price for that business, causing FAW to negotiate a cooperation agreement with Volkswagen instead.
Chrysler’s status as a Chinese takeover target will ultimately depend on the strategic route that companies there choose to take. At present this is still evolving. Chinese automakers are likely to undergo a round of domestic consolidation before embarking on any overseas takeovers. Already there are signs that this is on the cards, with Nanjing MG Motor Co indicating in March that it may sell as much as a 50% stake to outside investors to help fund its expansion.
In FAW’s case, the above-cited source said that the company had two possible strategic options. It could consider modelling itself on its Chinese rival Shanghai Automotive by buying some core technologies and then developing its own brand, as the latter did with Rover. Or it could model itself on Nanjing MG Motor by buying an entire line of production assets as well as the brand, as the latter did with MG.
“We felt that we still need to strengthen and complete our sedan car production line,” said the source. “We need to develop more brands in sedan car making and if we can quickly increase our sedan car brands by M&A, we would be happy to do that.”
According to the source, FAW has established a long-term goal of becoming a key worldwide automobile manufacturer in the future and M&A will be the primary means of achieving this goal. However, it remains cautious.
“We think it is still early for us to go out and make overseas buys,” said the source.
GAIG has long-standing ambitions to expand into western markets by acquiring an established automobile brand, core technologies or production. It is known to have become interested in buying the Jaguar luxury car brand last year when speculation emerged that its struggling owner, Ford Motor Co., may look to put it up for sale.
“USD 7.4bn is a good price for Chrysler,” the GAIG executive said of the Cerberus deal, “However, as the buyer is a private equity fund, it can be expected that eventually Chrysler will be sold after a period of restructuring. And the buyers could be more than one and not only come from China, but also from India, or any other countries in Middle East or south Asia.”
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