Saab News: Reuters analyzes the Saab - Pang Da Deal

Reuters news agency has done an extensive analysis of its view of Saab's partnership with Chinese mega-car dealer Pang Da. We shouldn't forget that China is a communist country, the press controlled by the state, with an economy that cheers up turbo-capitalism. That doesn't make the situation and understanding any easier.

The central government in Beijing has been trying for years to bring together the forces of the industry, but powerful provincial princes hold against it. Reuters analysis helps us understand the situation of car manufacturers in China, there is more to it than 100.

An industry that is torn between government regulation and gold rush sentiment. A long text that is worth reading. Here is our translation:

After the ink is dry and the champagne drunk, both sides are confronted with the sober reality of a remaining but difficult question to win the blessing of the Chinese government.

Obtaining government approval is always a difficult and obscure process, but the result is particularly uncertain at the present time and could be a lesson to other applicants in the auto sector.

In fact, analysts say after reading the fine print of the contract, another niche bidder in China's burgeoning auto industry is resurrecting Beijing's efforts to build local favorites to compete globally.

"Although the deal reflects Chinese companies' appreciation for European brands, it is highly uncertain that the government will find such an alliance good if the policy is to work with fewer, stronger national brands," said William Russo, an industry veteran who runs a consultancy firm called "Synergetics" in Beijing.

Nevertheless, Spyker CEO Victor Muller and Pang Da CEO Pang Quinghua are optimistic that they will be able to complete the deal as agreed.

The Saab factory in Trollhättan, which had stopped for six weeks after suppliers had stopped deliveries due to unpaid invoices, is now producing again after Pang Da 30 had advanced millions of euros, a business which as a product order did not require the approval of the authorities.

Pang Da is already in contact with the Chinese inspectors, including the National Development and Reform Commission (NDRC), a powerful agency that will decide the fate of Saab. Pang said the talks were "on good terms".

The partners want to build a production in China within a year and 50 Saab distribution points by the end of the year 2011.

"I am very optimistic that we will get a positive decision on this particular case," Spykers Victor Muller told Reuters shortly after the Pang Da deal was announced. “We don't need the decision tomorrow. We have the time to prepare for any questions the government may have and will show that it is a clean investment. "

"In the worst case scenario, we have a fantastic distributor who will sell an enormous amount of Saabs in this country," said Muller.

In the face of Pang's track record As for the sales of Audi, Mercedes Benz, Subaru and other foreign brands in China, Pang Da is really a good distributor, analysts say.

It is the ambition of Saab to produce locally, which raises the big question mark.

Inefficient, undefined brands.

Although China has replaced the US as the world's largest auto market 2009, China's auto industry remains weak and highly fragmented. The big cities in China are flooded with American, Japanese and European brands.

There are a few rising domestic stars, such as SAIC Motor Corp., but most of the homegrown manufacturers are still struggling with their image as a manufacturer of cheaper, simpler products, popular in small towns or less prosperous inland regions.

China could be the lifeline for bankrupt Western brands, and access to foreign cooperation could give opaque Chinese companies more assertiveness during the government-run industry reorganization, observers say.

But a "dying brand" with just 30.000 units in 2011, almost 2% of Audi sales in China per year, has little value for an industry that is already plagued by too many small and inefficient players.

"Saab has been on the ropes for years, says Michael Dunne, president of industrial consulting firm Dunne & Co. Ltd," has always been a quirky niche provider that has been dependent on its loyal customers. I'm not sure how much clout the brand would give a Chinese company. "

The best solution for the Chinese auto industry is to promote some big, strong players who have the potential to write the next success story for Toyota and, more so, for Hyundai, which first dominated the home market and then went overseas the Observer.

"Look around, all the big exporters have dominated their home market first, that's the rule," said Scott Laprise, China Auto Analyst at CLSA.

"It is very rare that this happens with inefficient and undefined brands in the home market."

Slow, painful consolidation.

The technocrats in Beijing have long had the vision of a few and strong national suppliers, but the industry has developed with more than 100 producers, some building only a few thousand cars a year.

Ultimately, China wants only two or three large corporations with an annual production of more than 2 million vehicles a year, plus four or five vendors with more than one million cars produced per year, says a memorandum from the year 2009.

However, consolidation is progressing slowly and painfully, hindered by provincial governments dreaming of developing their own automobile kingdom.

Brilliance Auto in northeastern Liaoning Province has been successfully torpedoed by its larger rival FAW Group from the neighboring province for years, Wang Min, governor of Lianoning, told Reuters in March.

Chery Automobile and Jianghuai Automobile, two medium-sized suppliers in East China, have been involved in rivalry for years, and are resisting the regulators' merger.

After two major restructurings since 2007, China's “top 3” manufacturers, SAIC, Dongfeng and FAW, accounted for less than half of national auto sales in 2010.

“China no longer needs automakers. If we go ahead and buy all the overseas manufacturers that are in trouble, we are only prolonging the painful process that consolidation requires, ”says Scott Laprise of the CLSA.

Outcry of the media.

The track record of China's overseas acquisitions is mixed at best. Authorities backed Geely's $ 1.5 billion takeover of Volvo, which gave the Chinese total control of the legendary Scandinavian car brand, but refused to purchase the now defunct Hummer brand in 2009 for small engineering company Sichuan Tenzhong Heavy Industries.

In the case of Tenzhong, the media controlled by the government gave the first indication of the outcome. The day after the Hummer deal went public, the state-run Xinhua News Agency issued a harsh comment addressed to Tenhzhong and others warning that "breaking big dreams into small pieces" if you continue to pursue dubious and risky deals .

This time the Chinese media are equally critical of the Pang Da relationship as well as the connection with Hawtai which ended after 10 days. Leading financial statements and websites brought stories that the NDRC was not particularly supportive of Saab's association with Pang Da, citing unnamed sources.

Saab's biggest hope, overseas observers say, is to be one of the big, state-backed, automotive groups on board that has the power of assertiveness to the regulators.

But each of these "top producers" has been associated with three of the largest global suppliers for years, so it will not be easy to join Saab as a minority shareholder. Beijing Automotive Industry Holding Co. (BAIC), which paid $ 2009 million for old Saab platforms in 200, is one of the potential partners.

“BAIC had the opportunity to buy the company earlier and decided against it. They believe they can build their own brand into something that has more charisma than Saab, ”said Dunne from Dunne & Co.

"If the price and conditions were particularly attractive now, I could imagine BAIC coming back and buying the brand."

BAIC, after billions invested to build its own luxury vehicles on top of purchased Saab technology, denied any comments.

Sources: Reuters, ReporterFang Yan and Ken Wills, Tim Kelly Tokyo.

Translation: tom@saabblog.net

Note: Saab suffers the fate of coming to the Chinese market too late. The government wants to pull through a consolidation.

The failure of the GM era to have no production set up in China is now taking its toll. A move to production in China that GM would have had to go well over 10 years ago has not been completed, and Saab is now paying off again for bad decisions from Detroit.

Even Opel, like Saab in the past under the caring supervision of the GM mother ship, is currently not getting a foot on the ground in China. It will now be difficult, but not impossible, to find the right partner for a production.