Small Business
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Geely boss dismisses 'loser' Toyota
In a sprawling factory south of Shanghai, Li Shufu, the self-made Chinese billionaire who is poised to buy Volvo Car Corp from Ford Motor Co, is presiding over a new-model launch party. If he has any concerns that his Geely Automobile Holdings Ltd’s rising sales and surging stock price could falter, he’s not showing them on that summer day. - Ford, Chinese co broadly agree to Volvo sale - Max India: Funding long-term growth - US bank chiefs to testify at crisis panel meet - Goldman Sachs takes 9.4% in Max India for $115 mn - Bear Stearns staff parties on as surviving banks scrap soirees - Sensex little changed; down 19 points Geely, the publicly traded automaker that Goldman Sachs Group Inc is backing to the tune of $334 million, is unveiling its first homegrown model specifically designed for Western markets, Bloomberg Markets reported in its February 2010 issue. The gleaming-white four-door compact, which retails for $11,700 to $17,600 in China, is called the Emgrand, a name made up to conjure grandeur. To the strains of the company song, willowy models in split-to-the-thigh cheongsams pin bouquets on pudgy Communist Party VIPs. Policemen salute as the first Emgrands leave this plant in the port city of Ningbo through clouds of theatrical smoke. Li, Geely’s chairman, already has an international auto business. Since 2006, Geely Automobile has been a 23 per cent shareholder in the company that’s the biggest maker of London’s iconic black cabs. In October, Ford named Geely Holding Group Co, Geely Automobile’s closely held parent, as the preferred bidder for Volvo. On December 23, Ford said the companies had agreed on most terms of the sale, which would be completed in the second quarter. As Li, 46, answers questions at the factory, a reporter asks whether he wants to emulate Japan’s Toyota Motor Corp. Toyota, the planet’s No 1 carmaker, lost ¥437 billion ($4.85 billion) in the year that ended on March 31, 2009. “Why should I want to be Toyota?” Li deadpans. “They’re losing billions.” If any product illustrates China’s place in the new economic order, it’s the automobile. The country has averaged annual 10 per cent increases in gross domestic product since 1978 — growth that has helped turn a nation of bicyclists into a land of car-craving consumers. China, with its 1.37 billion people, overtook the US in 2009 to become the world’s largest vehicle market by sales. The government projected that auto sales for the full year would soar 39 per cent to more than 13 million vehicles. In November alone, they shot up 96 per cent. While US manufacturers shrink, China had 117 automakers at the end of 2008, according to the China Association of Automobile Manufacturers. Amid a global recession, the collapse of Detroit and trouble at Toyota, investors are wild about China’s prospects. Geely, in which a Goldman-managed fund holds bonds and warrants that can be converted into 15 per cent of the company, saw its shares jump 573 per cent on the Hong Kong stock exchange in 2009 through December 28. That’s more than 10 times the rise in the benchmark Hang Seng Index. BYD Co, maker of the world’s first commercially available plug-in hybrid, an electric-powered car with a small gasoline engine for backup, attracted Warren Buffett. He bought a 10 per cent stake for $232 million in September 2008. BYD shares surged more than fivefold in 2009 through December 28. Shares of six other Chinese car companies, including SAIC Motor Corp, China’s biggest domestic manufacturer, have at least tripled. Goldman’s September 2009 investment in Geely increased in value by 50 per cent in the first two months. “Geely’s track record of growth, profitability and innovation has impressed us,” says Andrew Wolff, Hong Kong- based head of Goldman’s merchant-banking division in Asia outside Japan. Charles Munger, vice chairman of Buffett’s Berkshire Hathaway Inc., is equally bullish on Berkshire’s investment. “BYD is one of the most-interesting small companies in the world,” Munger, 85, told Bloomberg Television in May. Now, spurred by the government, Chinese automobile companies are challenging Western, Japanese and Korean rivals on the global stage. By 2015, China is aiming for 10 per cent, or an $85 billion share, of the world’s vehicle and auto parts sales, the Ministry of Commerce said in November. “There’s no doubt that 2009 marked the year that China became king of the automotive hill,” says Michael Dunne, president of Beijing-based Dunne & Co, which advises fund managers on buying shares in Chinese automakers. There may be roadblocks ahead. The most immediate threat would be if the government winds down its $586 billion stimulus at the end of 2010. The incentive package has given tax breaks and subsidies to more than 700 million rural residents, enabling them to buy minivans and light trucks for as little as $3,800. Already, on December 9, China said it would raise the sales tax on cars with engines of 1.6 liters or smaller, although not to pre-financial crisis levels. A bid for General Motors Co’s Saab unit, backed by another Chinese automaker, Beijing Automotive Industry Holding Co, or BAIC, came unstuck. GM said on Dec. 18 it would close Saab; BAIC ended up paying $200 million for some of Saab’s technology, according to a December 23 statement. Chinese carmakers, including Geely, have yet to make inroads into developed markets partly because quality, safety and brand recognition still lag behind rivals’. At home, the car frenzy has sparked traffic jams and worsened air quality in some of the world’s most polluted cities. Profit margins in China can be fractions of what they are in the West. And the torrid growth that’s luring investors may slow to 10 per cent to 15 per cent in 2010, according to SAIC and Volkswagen AG, which sells more cars in China than in its home country of Germany. “This is a crucial time for Chinese carmakers,” Dunne said in December. “What happens in the next six months will have a major impact on whether they will succeed or struggle.” The US shows how the top auto market can stumble. Sales in 2009 fell to about 10.3 million vehicles from 13.2 million, research firm JD Power & Associates predicts. GM amassed $88 billion of losses from 2004 through the first quarter of 2009 before it was forced into bankruptcy on June 1. After emerging on July 10, GM lost another $1.15 billion in the third quarter. Chrysler LLC sought bankruptcy protection on April 30, after losing $8 billion in 2008. It emerged, slimmed down, as Chrysler Group LLC on June 10. Khiem Do, who oversees $7 billion at Baring Asset Management (Asia) Ltd. in Hong Kong, says some Chinese companies have risen too far. He’s sold auto holdings that he declines to name. In December, he still liked Dongfeng Motor Group Co, China’s fourth-biggest carmaker, which has joint ventures with Honda Motor Co, Nissan Motor Co and PSA Peugeot Citroen. Its sales leapt 91 per cent in November from a year earlier and its shares rocketed more than fourfold in 2009 through December 28, when it had a price-earnings ratio of 22. “We still don’t think it is outrageously expensive,” Do says. China’s growth has spawned a class of superrich, who are snapping up luxury models. The country had 130 billionaires and 825,000 people with a net worth of at least $1.5 million in 2009, according to research firm Hurun Report Inc. In 2010, China will overtake the UK to become the third- biggest market for Mercedes-Benz vehicles, after Germany and the US, says Klaus Maier, who heads the Chinese operations of the division of Daimler AG. He estimates that Mercedes sales in China will have risen 65 per cent to 65,000 vehicles in 2009. Bayerische Motoren Werke AG, the world’s biggest luxury-car maker, announced in November that the Munich-based company would build a new $732 million factory in China. Sales of BMW’s vehicles, including the Mini, jumped more than 37 percent in China in the first 11 months of 2009. BMW makes cars in a venture with Brilliance China Automotive Holdings Ltd., a Hong Kong-listed company whose shares soared more than fivefold in 2009. The Chinese are fast-tracking their global strategies by acquiring Western brands, sometimes at knocked-down prices. In 2006, Geely acquired 23 per cent of Manganese Bronze Holdings Plc, the Coventry, England-based maker of London cabs. The 55 million pound ($90 million) deal enables Geely and Manganese Bronze to manufacture the taxis in Shanghai, where some workers earn one-thirtieth of the average salary of their British counterparts, Geely Executive Director Lawrence Ang says. In March, Geely purchased the assets of Australian gearbox maker Drivetrain Systems International Pty, which was operating under a receiver and in the process of liquidating, for A$47.4 million ($43 million). Buying the world’s No 2 independent maker of automatic gearboxes gives Geely more-advanced technology for its automatic transmissions. Other Chinese automakers aren’t standing still. In September, state-owned BAIC joined a bid to buy GM’s Saab unit for an undisclosed price in a partnership led by Swedish sports car maker Koenigsegg Group AB. Koenigsegg pulled out on November 23. On December 14, BAIC said it had reached an agreement with GM to buy some Saab assets, including vehicle platforms and turbo-engine and gearbox technology. The company said it would use the technology to develop as many as four car models and three turbo engines. In October, Chinese heavy-equipment maker Sichuan Tengzhong Heavy Industrial Machinery Co struck a $150 million deal to acquire GM’s Hummer brand. Li says thePages: [1] 2