China’s meteoric rise to number one status in terms of global auto sales prompted some lively discussion at last week’s Automotive News World Congress in Detroit, not the least of which was the observation there was US$60bn of Chinese cash potentially waiting for investment in foreign companies.
The country’s economic superpower status has long been on automakers’ agendas, but how to lever the enormous market to the best ability – and how Western companies have to cope with myriad challenges such as language and cultural differences – made for some illuminating conversation at the Congress.
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Electric power steering supplier Nexteer’s CEO Bob Remenar – whose company was acquired by Chinese operation PCM – made the startling observation: “There is a US$60bn market out there for Chinese investment in Western companies – China is very much focused on deploying its assets around the world.”
The Chinese clearly thought some of that US$60bn would be heading Nexteer’s way with Remenar claiming PCM’s purchase of the US$2.2bn company to be “the largest automotive purchase by China” and that having gone through two bankrupt owners and closed nine plants: “We were lean and in fighting shape.”
Perhaps the key to Nexteer’s success through the Chinese buy is the fact he says the new owners have left the steering supplier largely to its own devices – with the caveat nonethless as Remenar wryly observed in Detroit: “I had better make sure I am hitting the numbers.”
And therein lies the rub – no-one is expecting a free ride here with Remenar adding: “The Chinese are looking for a return on their investment.”
The steering chief also candidly admitted there had been “some scepticism” surrounding the purchase, although fears of wholesale job transfers to China had proved unfounded, with not a single position moving east, while indeed, the salaried workforce had risen by 20%.
Part of Nexteer’s appeal to PCM also seems to lie in what Remenar says is an ever-rising sophistication in the component manufacture sector in China. “The supply chain in China is becoming increasingly more robust,” he says, while emphasising the importance of buying local.
“We are purchasing more and more or our local content there,” he noted, adding: “We strive for 65%-70% local content – we hit these numbers more often in China” – a shrewd political move if nothing else to persuade the Chinese administration of the value in investing in foreign companies.
That need for approval at the highest level was echoed at the conference by China experts JFP Holdings founder and managing partner Jack Perkowski, who noted: The Chinese know they don’t really understand the overseas market – they still need to go through government for approval.”
Nowhere was that more clearly echoed in Saab’s recent tortuous and eventually thwarted attempts to stave off bankruptcy as it sought to convince General Motors new Chinese ownership was a viable way out of its economic morass.
Despite all the many and ingenious ways the Swedish automaker tried to secure funding and even if, a big if, GM had agreed to any Chinese investment, the ownership change would have to have been authorised by China’s National Development and Reform Commission, not a body to give its approval lightly by all accounts.
And of that fabled US$60bn, well some of it appears to be going Nexteer’s way, with Remenar noting: “We will probably spend up to US$500m in two years in investment.”
With so much financial power at their disposal in a global economy seemingly starved of cash, the Chinese are calling the shots.
Nexteer has been in the steering business for more than 100 years, but it is to a much more ancient culture that it has now turned to take the – financial – helm.
