On Chinese Partnerships

Unless your F5 key isn’t permanently stuck to your keyboard, you might not have heard that Saab is in talks with three Chinese manufacturers with the aim of an immediate cash injection. What exactly is the Saab management team trying to negotiate? According to Bloomberg, there are at least three goals:

1. Get quick cash to restart production
2. Gain access to the Chinese market to sell and market their vehicles in a more direct way
3. Joint-venture with a Chinese company to produce Saabs in China.

On the first point, Saab has come up with various plans, all of which have either dragged on due to complications with the EIB, GM, or any number of other factors. A joint-venture with a Chinese manufacturer can bring with it an immediate liquidity injection through a sale or licensing of technology. This mutually beneficial arrangement helps Saab survive and allows the Chinese company access to world class engineering, safety, and AWD technology that could catapult it ahead of its competition. If you’re not familiar with the new rules of the auto industry that Victor Muller likes to talk about whenever he gets a chance, they have changed. By leveraging their superior technology, Saab can be a power player in the segment which gives them clout.

While many of you might loathe the fact that Saab might be selling out to the Chinese, lets think longer about just how beneficial such an arrangement could be. On the second point of access to the Chinese market, Saab could immediately have access to a dealer network in China. Companies like BMW, Audi, and even Buick fare extremely well among Chinese consumers because they carry with them a certain mystique and reputation for being better than domestic brands. Saab could naturally stand apart and has a great chance of doing well in China, but without proper distribution channels, they don’t have a shot. By elevating a partner domestic brand in China, they can also help to kill off some of the competition on the lower end of the segment (think Chevrolet, VW), while leaving Saab to compete against premium brands. This lets each company chase their own niche.

On the third point of producing Saabs in China, my stance is that if Chinese production is good enough for Mercedes, BMW, and Audi, it should be fine with us. As much as I’d love my car to originate from Sweden, the truth is if you read a label on a new Saab you’ll see that parts are sourced from all over the world already. So long as Saab engineering and management stays in Sweden and the company keeps its headquarters and spiritual identity in Trollhättan, I could care less where my car is built so long as it trumps the competition in quality and style. If you’ve been keeping track of Swade’s adventures in Sweden over on Inside Saab, you’ll see that he recently attended a meeting with suppliers and engineers that helps cement these jobs in Scandinavia by investing in new innovation for weight reduction. That said, all indications are that any production in China would be intended for the domestic Chinese market, something that makes a lot of sense given that they’re now the largest auto market on earth.

With those main points addressed, let’s focus on just who the background of these automakers.

1. Great Wall Motor

I’m actually starting in order of who I’d rather see Saab partner with most. At the top of the list is Great Wall Motor Company Limited, more commonly called Great Wall Motor. Last year they produced almost 400,000 cars, 90% of those for the domestic Chinese market. In what is perhaps a nice nod to Saab’s rally history and future ambitions, they participated in the Dakar Rally in 2010. Interestingly enough, they’re also working on a factory in Bulgaria which can produce 50,000 cars a year through a joint venture with Litex Motors. Perhaps this shows just how ambitious they are to partner with European Automakers? If they’d sign a deal with a small player like Litex, imagine what cachet the Saab name carries in their minds.

While they have very little experience in building world class cars (and have actually been accused of copying Fiat and Toyota styles, ack), they have been working with Bosch GmbH and Delphi on new systems, and have confirmed they are in talks with Jaguar/Land Rover to possibly allow them to enter the Chinese market (which would allow production but supposedly only using parts sourced from official JLR partners at first, ensuring top quality- BMW works similarly with Brilliance Auto). They’re also heavily investing in their R&D department, and seem to be taking an active role in trying to transform themselves into a world class brand. Recently they were awarded the title “No. 1 of Top 10 Listed Chinese Automobile Companies” in China (they’re not state owned like BAIC who Saab has already dealt with). Some might say it’s reminiscent of the Korean Automakers 20 years ago, though the changes in the auto industry could mean a much more rapid ascent for the Chinese.

2. China Youngman Automobile Group

I was trying to remember where I had heard of them when I remembered they were involved in a joint-venture with a small start up electric car maker Zap! which once had ambitions to build a small Lotus designed crossover called the Zap-X. Wired has since done an expose on Zap! and discovered it’s a very odd company with questionable business practices, so that initially gave me doubts. China Youngman partnered with Zap! on a venture called Detroit Electric, which also worked with Malaysian maker Proton to create new electric vehicles, which they have some seriously ambitious sales targets (270K by next year?). If they can deliver on their promises, they stand to be an interesting player in the Chinese market.

Up until now they’ve made buses, which kind of reminds me of Saab’s old ties to Scania. I don’t see how Saab really gets a solid manufacturing partner with these guys or a great sales distribution network though.

3. Jiangsu Yueda Investment Co.

This one kind of scares me. According to Reuters:

Jiangsu Yueda Investment Co., Ltd. is principally engaged in manufacture, transportation, commodities distribution and coal mining businesses. The Company’s major products are automobiles, tractors, yarns and coal, among others. The Company also involves in investment, construction and operation of road projects. As of December 31, 2009, the Company had eight subsidiaries and three affiliates, which involved in toll collection and operation of roads, manufacture and distribution of textile products, tractors and coal, materials supply and warehousing services, as well as import and export trading.

They partnered before on vehicle production with Dongfeng Motors on Kia production in the late 90s for Kia, so they’re not completely new to vehicle manufacturing. At the same time, they have a boatload of cash and perhaps it would be even better to join together with someone who serves more as an investment arm who specializes in industrial production (cars, tractors, coal…) than an automaker that wants to raid Saab’s patent pool?

All of these companies have interesting advantages and drawbacks, and hopefully Saab can draw out the best deal for itself from them which will lead to a quick resolution and lead to future prosperity in China. According to a source close to Reuters, “The negotiations are very far advanced and should produce results over the weekend,” so we should be hearing what the results of these talks are very soon.