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Discussion Starter · #1 ·
Hot from vvspy.com... Tomorrow's NEWS today!

Looks like one of our fears is about to come to pass and that is the Chinese government is forcing mergers of auto plants and Geely is not excluded.

Will it be Geely/VolvoChangan or Geely/Volvo/BYD? Your guess is as good as mine.

Armed with this news will Ford reconsider the sale of Volvo to Geely?

Or will the Jakob/Crown bid now merge as the shining knight to save princess Volvo? Jakob/Crown can now JV with any company they desire.

AFP - Saturday, January 30

China auto makers must merge before adding plants: report

SHANGHAI (AFP) - - Authorities will require Chinese auto makers to merge with a domestic rival before being allowed to build new factories as Beijing moves to muscle in on the global market, state media reported Friday.

Government guidelines expected to be formally announced in March will provide tax incentives and preferential lending for the mergers, the Shanghai Securities News reported, citing unnamed sources.

The move is part of a Beijing plan to consolidate the sector and build companies that can compete on the world stage.

Two Chinese auto makers vying to become global players were presently seeking a go-ahead to produce cars in Beijing, the report said, citing unnamed sources close to management at Beijing Automotive Industry Holding Co (BAIC).

BAIC has agreed to buy some of the intellectual property rights from General Motors' Swedish unit Saab, while Geely Zhejiang Holdings, which is also eyeing a Beijing plant, is acquiring Ford's Swedish brand Volvo.

By 2011 Beijing aims to cut to 10 from 14 the number of major domestic auto makers, who are responsible for 90 percent of China's sales and output, according to an industry restructuring plan unveiled by the cabinet last year.

Under the plan, two or three companies would be capable of each producing more than two million units a year, while four or five others would have annual output capacity of one million units.

China has more than 100 auto makers, but many small players are losing money and are propped up by regional governments, according to analysts.

China overtook the United States as the world's largest auto market last year, with sales up 46.2 percent on year to 13.65 million units, partly due to policies including tax cuts and state subsidies, government data show.

SAIC Motor Corp, China's biggest auto maker in terms of sales, sold more than 2.7 million vehicles last year, but foreign brands dominate the market and SAIC's success rests on its partnerships with General Motors and Volkswagen.
 

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Re: Geely forced to merge by Chinese government. (njb8199)

Quote, originally posted by njb8199 »
Do I have to say, "I told you so"?

Did anyone had any doubts that 100+ companies cannot sustain without heavy gov. subsidies that sooner or later are going to end?

The real issue, as I see it, that people on one side of the known deal , like Nick or Munin now will say - the deal is even more "evil", and people on other side, like myself - will say - "So what?"

I had a successful carrier in Soviet heavy-duty industry, that is the reason why I do not think that the Communist Party or some central governmental body are really affecting the large production facilities.

It is a subject of a long discussion, but the Communist Party representative at actual faclity has a power of PR or HR, at most. And in my experience the CEO/President of a large production facility in any locale, has more weight than the most of Communist Party leaders in the same locale...

The influence is through the same means as in US, mostly - taxation, regulations and access to federal funds...bailout anyone?
 

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Re: Geely forced to merge by Chinese government. (gascos80)

Quote, originally posted by gascos80 »
that people on one side of the known deal , like Nick or Munin now will say - the deal is even more "evil"

Wrong, that's not at all what I will say. Congratulations, you have now been wrong about me exactly 1,000 times!

What this does show is exactly what I have argued before: Modern China is halfway between a free market and a centralized economy of old. For every three steps forward, it takes two steps backwards.

Quote, originally posted by gascos80 »
I had a successful carrier in Soviet heavy-duty industry, that is the reason why I do not think that the Communist Party or some central governmental body are really affecting the large production facilities.

It is a subject of a long discussion, but the Communist Party representative at actual faclity has a power of PR or HR, at most. And in my experience the CEO/President of a large production facility in any locale, has more weight than the most of Communist Party leaders in the same locale...

And I suppose this is why the USSR had the same level of economic success as the United States?

By 1990, the U.S. had a GDP that was twice that of the USSR, despite the USSR having a population and labor force that were approximately 20% higher.

Quote, originally posted by gascos80 »
The influence is through the same means as in US, mostly - taxation, regulations and access to federal funds...bailout anyone?

No, the influence is that the State owned the means of production in the USSR. China still has a large amount of state-owned production. You have yourself mentioned that Geely is its only private car manufacturer, yet it too is entirely dependent on State financing for its acquisitions.
 

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Re: Geely forced to merge by Chinese government. (Munin)

Quote, originally posted by Munin »


Wrong, that's not at all what I will say. Congratulations, you have now been wrong about me exactly 1,000 times!

What this does show is exactly what I have argued before: Modern China is halfway between a free market and a centralized economy of old. For every three steps forward, it takes two steps backwards.


OK. So how does it make me wrong. Apparently, you like a deal between Geely and Volvo even less now. True? False?

And it is arguable, whether consolidating of autoindustry is indeed the step backward. I have no doubts - many economists will agree with me.

Quote, originally posted by Munin »


And I suppose this is why the USSR had the same level of economic success as the United States?

By 1990, the U.S. had a GDP that was twice that of the USSR, despite the USSR having a population and labor force that were approximately 20% higher.


True,
But I was talking about process efficiency and operational independence.
I worked for a company that was second to none to Bethleem Steel only, if not better. We were making the roughly the same amount of steel that was, btw, marketable, and freely traded post-1991, for a peanuts of a cost with roughly the same number of people.

You cannot compare the GDP of USSR and USA in 1990, because the currencies were not mutually convertible. When I left USSR in 1989, the buying power of USD, compare to rouble was 15 to 1. Any GDP comparisons based on official exchange rate are meaningless...

My recollection is that the cost of a metric ton of certain steel was several hundred roubles, let say 600, which would be just 40 USD, while post-1991 the same metric ton would be sold at around 300 USD in London or NY.

If you consider that, the contribution of our company to USSR GDP should be multiplied by 7...see where I am going?

Quote, originally posted by Munin »


No, the influence is that the State owned the means of production in the USSR. China still has a large amount of state-owned production. You have yourself mentioned that Geely is its only private car manufacturer, yet it too is entirely dependent on State financing for its acquisitions.

True,

But the operational independence is there...it is impossible to run the production facilities from the Central Counsil of Communist Party, and I believe that the local manufacturing magnats have more weight than the party officials...

That's exactly the reason, why such fast growth of free market economy was possible at first place...

I work for the large privately owned regulated public utility. The modus of our operation, budgeting, accounting and planning has very many similarities to the modus of operation of my last employer in USSR.
 

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Re: Geely forced to merge by Chinese government. (gascos80)

Quote, originally posted by gascos80 »
OK. So how does it make me wrong. Apparently, you like a deal between Geely and Volvo even less now. True? False?

This news has no impact on what I think of the Geely-Volvo deal.

Quote, originally posted by gascos80 »
You cannot compare the GDP of USSR and USA in 1990, because the currencies were not mutually convertible. When I left USSR in 1989, the buying power of USD, compare to rouble was 15 to 1. Any GDP comparisons based on official exchange rate are meaningless...

International GDP conversions are usually based on purchasing power parity (PPP), not on official exchange rates.

Quote, originally posted by gascos80 »
If you consider that, the contribution of our company to USSR GDP should be multiplied by 7...see where I am going?

See above.
 

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Re: Geely forced to merge by Chinese government. (Munin)

Quote, originally posted by Munin »


This news has no impact on what I think of the Geely-Volvo deal.

I gladly apologize. Welcome to "So what?" camp...

Quote, originally posted by Munin »


International GDP conversions are usually based on purchasing power parity (PPP), not on official exchange rates.


This is something that many economists take with the grain of salt.

As an example - I went back to Russia once in 1993. The official exchange rate was 10 roubles to 1 USD.

The purchasing power of USD in Moscow was roughly 2 to 1 to the official course. The room at the decent hotel - $65. Dinner for one in average restaurant - $10-25, taxi ride about 30 miles - $15, all food and clothing items - roughly 1/2 price in dollars, compare to LA.

But when I went to the town where I spent last 25 years of my Soviet life - the difference was striking...

Night in the private suite of State Minister of Ferrous Metallurgy - made of 2 x2-bedroom appartments connected with the huge conference hall - $1.50

3 course dinner in a fine restaurant with wine - $0.40

Taxi ride across the town - 20 miles - $0.40

All food and clothing items ~ 1/3 to 1/5 of Moscow prices - go figure...

Just an anecdotal evidence...btw.
 

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Re: Geely forced to merge by Chinese government. (gascos80)

Quote, originally posted by gascos80 »
I gladly apologize. Welcome to "So what?" camp...

I wouldn't put myself in the "so what" camp. I find the news very interesting, as it says a lot about the Chinese regime's direct involvement in the economy. It just doesn't affect my opinion of the Volvo-Geely deal one way or another. Nor do I read the news as even necessarily pertaining to Geely, despite Geely being named. I suspect it only applies to the state-owned manufacturers. But maybe the Chinese government will use Geely's request for loans as leverage for it to absorb the assets of some lesser manufacturers in the process.
 

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Re: Geely forced to merge by Chinese government. (Shomare)

Quote, originally posted by Shomare »
Wow! Such high drama for our beloved Volvo. It's one for the history books. Sure do hope the good guys win like they do in the movies!

"High Drama," au contraire, "Soap Opera." If Ford knew what they were doing they would organize a management buy out just to get Volvo off their hands rather than this endless farce.
 

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Geely was concerned about the Chinese government forcing a third chinese state owned company into the deal. However, apart from their concern there is no actual suggestion by the Chinese government.

The current volume of regional state owned car companies is unsustainable and there have been previous mergers of state firms

The question really, and that article doesnt necessarily mention Geely, is if the sole nonstate owned car company is also forced to partner a state owned one.

For the 14 plus state owned one, some mergers are inevitable. Not so Geely. They are also concerned as they want to remain independent but the government so far has supported the deal without requesting a state owned company join in. Lets hope they dont ask....
 

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just re-read that news.

So, Geely will have to expand its existing facilities rather than build a standalone Volvo factory or will need a Volvo factory local to Chine but outside the chinese market.....Taiwan?
 

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Hello

Having thought about this news for a while now, I think if applicable to Geely it would also be the end of Geely's ambitions for itself as well ie to remain independent, they couldnt expand their existing factory and hence would be limited to circa 400k vehicles a year against the state own brands ambitions of 1-2 million.

So not only ending the Volvo deal, it would also signal the end of Geely themselves.

If it only applies to the existing plethora of state owned car companies, then Geely and Volvo is ok. See the new plans and info re Volvo put out by Geely today. Looks good.

If there is a problem with Geely under this government plan, then Ford will need to keep Volvo and would be wise to make them into Ford's Audi brand via significant investment, focus and determination. Volvo would need to be part of Ford's permanent long term plans.

If Ford does sell Volvo, their future is questionable as they will be eclipsed by VW Group, Toyota and Fiat who make mainstream cars like Ford but ALSO premium vehicles
 

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Discussion Starter · #15 ·
Re: (Shimon)

Well I read the new plans as you suggest.

Long term plans for Ford is Chongging Operations will produce Ford Focus, Mondeo, S-MAX and a couple of Volvo cars models. I assume these models will be the contracted S40 and S80 that expire with Changan in 2018.

What I did find interesting was that joint ventures in China are taxed at 25%. Tax losses may be carried forward and applied against taxable income for a period of 5 years - benefiting Geely, Ford and Changan.

When will the Changan/Ford/Mazda/Volvo joint venture really expire? Chinese joint ventures appear to be long term 20 to 40 years.

I also read that BYD Co. China's battery company will supply all Chinese auto companies with batteries - for electric cars. All car companies in China will need to joint venture with BYD Co. to obtain batteries - so says the Chinese government.

If Ford was to consider seriously a bid from Jakob/Crown they too could joint venture with Changan or Chongging Operations to continue production as is and utilize their distribution facilities within mainland China. Seems the argument for a Geely transaction is that they have distribution within China. All Chinese car companies have disrtibution within China.

In addition luxury brands like the S80 will be stretched and made even more premium targeting the nouveau rich within China AND Changan can easily do this if the joint ventured with Volvo continues.

Ford should seriously consider Jakob/Crown bid as the contract joint venture with Changan will not expire until 2018 giving Jakob/Crown plenty of time to increase production and plan for exportation.
 

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The expiration date of the current Ford-Volvo contract with Changan hasnt been publically disclosed. Geely are looking to maintain it until their volvo plant is up and running. Other sources suggest Geely will move Volvo production from Changan to their own plant by next year.
 

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Re: (Shimon)

Sure is difficult to witness Volvo going down the tubes. Can't imagine who would be in the market for a Chinese Volvo. Will be a big change for me...considering my current and past Volvos.

Current:
2007 S60R
2006 S60R
2006 V50 (AWD)
2001 XV-70
Past:
2000 S70
1999 XC-70
1989 245
1988 240
 

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Re: (couchhw)

Quote, originally posted by couchhw »
Sure is difficult to witness Volvo going down the tubes. Can't imagine who would be in the market for a Chinese Volvo. Will be a big change for me...considering my current and past Volvos.

Yeah, VCNA has projected 0 sales for May 2010-December 2010 since all Volvos will now be made in China...
 

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Re: (CaptainHarlock)

Quote, originally posted by CaptainHarlock »
Why do I get the feeling that this deal is looking like someone who buys a house, but doesn't know how to maintain it, nor is able to pay for the thing?

I wonder what their FICO is...or did they pay cash?
 
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