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China Onslaught Has Started With European Supplier Takeovers

Roland Berger says China Buying Into High Class European Suppliers

Marchionne’s words should be taken as those of an industry visionary, not a negotiator

Fiat-Chrysler CEO Sergio Marchionne warned that China poses a big future threat to European and American auto manufacturers, but according to German automotive consultant Roland Berger, the onslaught has already begun in Europe.

“Investors from emerging markets – mainly China – are entering the European market in droves. Chinese suppliers are boosting their international competiveness by taking over sound companies,” said the report.

Marchionne said at a conference in Traverse City, Mich., that Chinese car manufacturers currently produce mainly for the domestic market, but have significant plans for the export market which adds up to an enormous risk to home markets. Auto makers must construct what he called a “lasting renaissance of the automotive industry”, although he didn’t elaborate.

China has long threatened to start selling cars in Europe, and is finally off the mark with the MG6 sedan, which is assembled at SAIC of China’s Longbridge plant near Birmingham. This car went on sale in Britain last month, and will appear on European dealerships next year. MG plans six new models, including an MG3 small hatchback, MG5 compact and an SUV crossover. MG is owned by SAIC, China’s biggest domestic carmaker. Parts for the MGs are built in China and put together in Longbridge.

European encouragement
According to the Berger report, Chinese companies are buying suppliers in Europe, and big European manufacturers are even encouraging them, at least at this stage.

“Strategic investors from Asia – China in particular – are increasingly interested in taking over Western suppliers to secure market share and gain technological expertise. (big manufacturers) are putting few hurdles in their way, as they are keen to see the Chinese supplier base improve. At the same time, there are hopes of combining Chinese low-cost approaches with Western engineering prowess,” Berger said.

Berger pointed out that Chinese companies are responding to its government’s plan to improve technology by investing abroad and becoming global leaders.

The Financial Times’ Lex column said some cynics had accused Marchionne of playing the China card to remind U.S. unions they had better not seek too much from the current contract negotiations. But Lex didn’t agree.

“His words should be taken as those of an industry visionary, not a negotiator. Think back just a few decades when China was dubbed the “bicycle kingdom” with passenger cars a rarity. Extrapolate its progress to date and Mr Marchionne’s prediction rings true,” Lex said.

Neil Winton – August 15, 2011

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