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China Economy Goes for the Gold in Global Auto Industry

|Includes: F, General Motors Company (GM), VOLVY

China Goes for the Gold in

Global Auto Industry

China Goes for the Gold in Global Auto Industry

About: (Beijing Automotive Industry Holding Co, BAIC, Saab, General Motors, Ford Motor Co, Geely Holding Group Co, Volvo, China’s Sichuan Tengzhong Heavy Industrial Machinery Co, China Stock Digest)

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Cash rich, China’s automotive upstarts are buying up the crown jewels of the world’s auto industry: intellectual property. The Chinese auto industry exploded during 2009, becoming the world’s largest with sales passing the 10 million mark for the year. But Chinese auto makers have never owned the technology to build modern cars which could compete on world markets. Now they do.

In the most recent development, Beijing Automotive Industry Holding Co. (BAIC) will buy the intellectual property for Saab's 9-5 and 9-3 sedans and some equipment to make them. BAIC is China's fifth-largest automaker.

“The deal is an important milestone in BAIC's cooperation with Saab,” the company explained in a statement. BAIC is one of the few Chinese automakers which does not have its own brand. BAIC says it will get support from

Saab as it uses the acquired technologies to manufacture its own-brand models. BAIC was unsuccessful in earlier attempts to buy other foreign brands, including GM’s Opel. Saab is another GM-owned brand which is being spun off as the U.S. auto giant struggles to emerge from bankruptcy. Automotive experts say GM diminished Saab’s quality reputation and sales plummeted in the U.S. last year. A Dutch company may buy the Saab brand itself.

Volvo may also be sold to China in another bid to gain western technology. Geely Holding Group Co. tells the Wall Street Journal that it is still Ford Motor Co.'s preferred bidder for its Volvo car unit. Geely is a fast-growing Chinese brand with a reputation for selling extremely low-priced vehicles to a cost-conscious market. Geely and Chery have ambitions to compete in global markets but have struggled with quality issues.

Ford picked Geely in October as its preferred bidder for Volvo, and the two sides are negotiating terms, particularly over the all-important rights to Volvo technology.

China’s car companies are aware that global auto consumers are very discriminating about reliability and quality. Chinese consumers are also becoming more quality and luxury conscious – all important reasons for the rush to buy western brands, including Hummer which is expected to be sold to China’s Sichuan Tengzhong Heavy Industrial Machinery Co.

The center of the automotive universe is shifting to China as the gold rush continues to buy the surplus brands and technologies that the Chinese have long seen as the crown jewels of the industry.

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