Could China Speed Up Western Attack By Buying Its Way In?

Here’s a thought to keep investors in car companies warm at night and put the frighteners on the world’s biggest manufacturers and their employees.

What if China decided to take over one of the key players in the West to speed up its entry into the richest markets?

That idea is raised in the McKinsey Quarterly, and described as a strictly theoretical look at how Chinese car makers might seek to make the next step of competing outside its phenomenally successful home market, now the world’s biggest in terms of sales.

China has been about to start selling its cars in Europe and the U.S. for about five years now, but so far nothing much has happened. A few trial balloons have been floated, with vehicles looking suspiciously similar to current Western models.

An article in the management consultant’s current McKinsey Quarterly called “Applying global trends: A look at China’s auto industry”, tries to predict what share of the developed markets Chinese car makers might achieve by 2020.

“After all, Chinese automakers enjoy a 35 per cent cost advantage over those in developed markets and Chinese OEMs have super-sized ambitions,” the article said.

Miniscule penetration
It recalls that Geely Automobile, which just bought Volvo from Ford, had said it would sell two million cars in the U.S. by 2015. But the article says surveys, like one from IHS Global Insight, show only a miniscule penetration by China, of 0.2 per cent of Western markets by 2020.

The article said China might seek to raise its profile by concentrating on new technology vehicles powered by batteries or hybrids, or other clean technologies. Or it could raise safety, emission and quality standards on cars for sale in China and at the same time ruthlessly subsidize its own companies to be able to compete.

Or perhaps China would acquire a large, leading Western auto brand.

“Chinese cars could rapidly exceed minimum quality and safety standards if the government’s appetite for technology and management know-how drove it to support the acquisition of a major automaker in a developed market (say one of the top five). This move would speed the transfer of best practices to local Chinese companies, thus helping them to move rapidly up the learning curve, to improve their brand image, and to develop a more sophisticated understanding of consumer needs,” the article said, while underlining that this was strictly theoretical.

In terms of sales, the top 10 manufacturers in the world in the first six months of 2010, according to AID Data, were

GM – 4.15 million

Toyota – 3.86 million

VW Group 3.61 million

Ford – 2.67 million

Nissan – 1.88 million

Peugeot-Citroen – 1.86 million

Hyundai-Kia 1.85 million

Honda – 1.77 million

Renault – 1.35 million

Suzuki – 1.34 million.

The most likely candidate for Chinese interest might be Fiat, at 1.09 million in eleventh place. Because of its tie-up with Chrysler, this would offer the Chinese an established brand, plus Chrysler’s important distribution network in the U.S.