Has China Inc. Bought Americas Outdated Auto Technology?

Following Chinas recent buying spree of European and American-owned auto brands

, technology and know-how, I feel a few related issues not commonly asked may be prudent to question in light of the massive amounts albeit at fire-sale prices that China has acquired these production facilities and knowledge for. As the United States belatedly loses its grip on auto manufacturing, we are without doubt witnessing the inevitable; the restructuring and re-balancing of corporate America away from such employee-heavy manufacturing industries and more towards service, innovation and design, a step long overdue. Yet it reminds me uncannily of Europes sale of 1940s and 1950s technology to India when Fiat and Morris, at the time two of Europes most powerful auto companies, sold off their cheap production lines, technology and knowhow to India. While European auto manufacturing moved on and consolidated, the technology India had purchased kept their auto sector firmly in a quaint time warp for close to forty years. The Ambassador, little more than a 1940s Morris Oxford, is still churned out by Hindustan Motors today.

In purchasing parts of all of Rover, GM and so on has China actually been buying almighty pups under the guise of economic downturn value for money?

Three things make me feel this may be the case. Firstly, the experience of India, when it thought it was getting what to them at the time seemed a good deal cheap, second hand technology that would allow them to turn out cheap cars for the Indian market. Yet it kept Indian innovation subsumed for decades. The vehicles were almost too popular for their own good. I am sure the officials who did the Indian acquisition deals with Fiat and Morris at the time would be amazed to see the vehicles still common on Indian roads nearly 50 years later. Only recently has India been able to show signs of recovering from what actually amounted to the purchase of a repressive technology.

Secondly is the rise of new technologies in auto manufacturing. Clearly, the combustion engine is on the way out. Inefficient, polluting, and expensive to make, it takes up about 40 percent of all components needed in a modern vehicle. That last aspect may be attractive to China as it needs to find things for its massive population to do to keep them occupied. However, surely the first two outweigh any advantages of maintaining a labor pool. As newer, greener, more efficient technologies begin to take over, and the rise of the hybrid or fully electric car appears imminent, the mega-purchasing of production lines churning out combustion engine driven behemoths seems to be an expensive gamble that flies in the face of auto evolutionary wisdom.

Thirdly, an unnoticed, yet positive thing to have come out of the global downturn is the reflection in hindsight of venture capital and private equity firms. The days of the billion dollar deal are mainly gone, and a new, more contrite Wall Street atmosphere, with lesser financial aims is appearing. Just a few days ago I was advised by a P/E firm in New York that if an Asian business could fulfill criteria of an annual turnover of US$30 million, show a growth rate of 30 percent and a profit margin of ten percent wed be interested in taking them to IPO in the United States. This is good news. Finally institutional money is available and is actively seeking to fund smaller, dynamic entrepreneurs in industry. A new era will emerge from this, funding the technology we now need to deal with the global problems the world is facing today. Green is in, and polluting mass consumer industries, such as automobiles, with their heavy dependence on the combustion engine and oil, are surely on the way out. Institutional investment is now looking at getting into where the money is desperately needed to usher in a new, oil free energy environment. These businesses already exist, and with proper funding will now be able to make far greater strides towards solving problems such a battery capability than is currently the case. The process of refinement for auto away from the combustion engine is underway.

The new auto regime may well be made up of names not notably associated with the industry today. The stealthy integration of electric power into the auto industry has already begun. With more than 100 electrical component parts in an average vehicle today, powering everything from electric windows, windscreen wipers to your CD player, the number of such components in auto engineering is increasing. As the fully electric engine, funded by private capital starts to become a reality, Chinas purchase of combustion heavy auto manufacturing assembly lines and R&D facilities may not look in the future to have been such a good idea.

by: Chris Devonshire-Ellis

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