Chinese Companies See Opportunity in Sluggish U.S. Automotive Market

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Researched by Industrial Info Resources (Sugar Land, Texas)--For the past two years, most of the news about the U.S. automotive sector has been bad. Both General Motors Corporation (Detroit, Michigan) and The Chrysler Group LLC (Auburn Hills, Michigan) have suffered through bankruptcy proceedings, while the entire sector has faced sluggish sales and almost non-existent credit, making the financing of automotive sales difficult. However, in these down times, others have seen opportunity within the American automotive marketplace--namely Chinese companies, which have money to spend and have long watched the American marketplace, seeking some way to take hold of a piece of the pie.

In chaos comes opportunity, and the Chinese have seized that opportunity and are not looking back. Recently, Chinese heavy equipment manufacturer Sichuan Tengzhong Heavy Industrial Machinery Corporation (China) agreed to purchase the Hummer brand from GM. Both sides are waiting for regulatory approval, both in the U.S. and in China, for the deal to be finalized.

Ford Motor Company (NYSE:F) (Dearborn, Michigan) is deep in negotiations with Zhejiang Geely Group Holding Company Limited (China) on the sale of the struggling Volvo brand. Ford purchased Volvo from Volvo AB (Sweden) in 1999 for $6.45 billion, and recently has been seeking a buyer for the brand so Ford can focus on its primary brands: Ford, Lincoln and Mercury. Geely is one of China's leading automakers and would leap at the chance to acquire a proven brand such as Volvo.

Back in late 2008, when GM and Chrysler were facing bankruptcy and begging for government bailout money, there was speculation that Chinese automakers Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation were interested in purchasing assets of the struggling American automakers. While a purchase of this nature has not yet materialized, something similar could happen in the future if GM or Chrysler decides to sell more brands. Several Chinese automakers have shown interest in acquiring Volvo and other struggling European automakers, but nothing has come of the negotiations until now.

SAIC, China's largest automaker, and more than 30 other Chinese automakers have committed billions of yuan to the research and development of hybrid and electric vehicles, something that is just now gaining momentum in the U.S. More than 40 such major projects are in the works in China. Dongfeng, China's third-largest automaker, is working with a Dutch electric car startup company, Detroit Electric, to develop and sell electric vehicles in China.

These companies could easily transfer these models to the U.S. or European markets once they have perfected their designs and technology. Other Chinese automakers already have made announcements about proposed hybrid vehicle manufacturing plants in the U.S. this year. Both HK Motors (Hybrid Kinetic Motors) and GreenTech Automotive have announced plans to construct grassroot hybrid manufacturing plants in the states of Alabama and Mississippi, respectively.

Both of these projects are just in the talking stage right now. But if they were to move beyond talk and into actual development, they could pose problems for the American automakers who are trying to get into the same markets rapidly. HK is proposing a $1.5 billion plant on 3,000 acres that would employ 5,800 workers and produce 1 million hybrids per year once completed in 2018. GreenTech is proposing a $1 billion grassroot plant on 1,500 acres that would employ 1,500 and manufacture 250,000 hybrids per year by 2012 or 2013.

Geely, the company that is trying to purchase Volvo, is in the midst of a five-year energy program that will enable the company to produce five models of hybrid sedans by 2010. If they can pull this off and purchase Volvo, they would have an avenue directly into both the European and American markets with these models. Geely also will release its first electric car, the Geely Panda, within the next 12 months.

HK and GreenTech are the first two companies to see if they can make the hybrid market work in their favor in the U.S. Both projects are currently seeking additional startup funds, but if they can garner enough financial backing they could take off rapidly and we could see these plants quickly become reality.

Meanwhile, both the American automakers and their traditional foreign competitors are significantly behind the eight ball on this issue. Toyota Motor Manufacturing North America (NYSE:TM) (Torrance, California), which began construction on a new plant in Mississippi last year, ended up placing the project on indefinite hold due to the problems facing the national economy. Toyota has yet to restart the project and is not even sure what model they will produce at the plant once it is completed.

GM, Chrysler and Ford are just getting their electric vehicle programs started. While some models are expected to be released relatively soon, it has taken the insistence of the government to force the automakers to make a more concerted effort in this direction. China has set a goal to put 1 million "green" cars on the roads by 2012, a goal that easily could be exceeded, based on the commitment Chinese automakers and cities recently have made.

The American automakers have fallen behind in the battle for automotive supremacy. Their traditional competitors, such as Toyota, are not doing much better at this point. They all have opened the doors for other nations, such as China, and their fledgling automotive companies to step in and take charge of the situation. Hopefully, the American automakers can right their own ships and get back on track, or the next few years could be very unkind to them in the U.S. as they watch their market share rapidly shrink as new players enter the game.

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Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.