A visitor looks at a Hummer during a local automobile exhibition in Shenyang, Liaoning province, in China.
When little-known Chinese car company Tengzhong made its bid to buy the Hummer brand from General Motors earlier this year, many in China raised eyebrows even before regulators bogged the deal down in red tape.
"We have been doing business with Hummer for about three or four years. In the beginning, it sold well. But in recent years, it hasn't done well," said Liu Bin, a manager at Beijing's Tonghua Xingye dealership, which sells Hummer alongside BMW, Ferrari and Bentley. "It is a bit silly - it's kind of showing off and flaunting."
Yet it's the kind of foreign-brand status that Chinese car manufacturers appear to be seeking as they capitalize on the struggles of companies like GM by bidding for their brands.
At stake is the giant and growing Chinese market for passenger cars, which has now surpassed even the U.S. market. Chinese industry analysis shows that about 33 million additional cars are expected to hit China's roads between 2008 and 2010.
In a country of 1.3 billion people with a rapidly expanding middle class, it's no wonder both foreign and domestic car manufacturers are looking to China as their saving grace at a time when car sales in the rest of the world are flat or contracting.
"It will make this country a very lucrative market for auto producers of the whole world," one China-based analyst said.
"For foreign companies, if they don't have a China strategy, they don't have a global strategy for foreign competition," said Zhang Yu, China analyst for auto market forecaster CSM Worldwide.
The Chinese government's four trillion yuan ($636.2-billion) stimulus package unveiled last November also includes incentives for consumers to buy their first cars or upgrade their old ones, a measure that has helped drive car sales to record levels. Sales figures show 874,000 cars were sold in June in China, up 48.5 per cent from the same period last year and an increase on the previous month's sales of 829,100.
The rush by foreign car makers into China has come at a cost for Chinese manufacturers, who find consumers with the financial means to do so will still turn to foreign-branded cars before Chinese models, largely due to their reputation for quality.
In this tough competitive market, profit margins are increasingly slim.
Beijing Automotive Industry Corp., controlled by the government, had been one of the bidders - against rivals Magna International Inc. of Aurora, Ont., the original bidder, and Brussels-based RHJ International - for GM's Opel unit. But it failed to secure a deal last week.
The much-trumpeted Hummer deal also appears to be on the rocks, caught up with government regulators, some of whom are thought to frown upon the purchase of a gas-guzzling line of military-style vehicles at a time when the country is focused on improving its environment.
"Everybody in China is facing the same competition problems. The market is growing, but it's increasingly difficult to make money there," said John Bonnell, the Bangkok-based director of Asia-Pacific forecasting for J.D. Power and Associates.
"Profits are falling by the wayside. There's a lot of players and the profits just aren't there."
By bidding for foreign makers, Chinese companies hope to acquire both the technology and cachet that will find appeal in the domestic market.
Earlier this month, Beijing Automotive delivered a non-binding bid for 51 per cent of Opel, offering €660-million ($1.01-billion) in a takeover that would be heavily focused on the transfer of Opel's technology to Chinese plants. The deal was briefly seen as promising but has since been eclipsed by offers from its two rivals.
Somewhat more promising is a bid for Ford's Volvo division by China's Geely Holding Group Co., which has hired as one of its advisers former Volvo executive Hans-Olav Olsson.
Geely, one of China's top 10 domestic car producers, is expected to offer a final bid of around $2-billion (U.S.) this month.
And more Chinese bids for foreign auto makers are expected as further opportunities arise.
"The crisis is attacking the auto industry, but also bringing opportunities to Chinese car makers," said Li Chunbo, an auto analyst with Beijing-based CITIC Securities.
As the top-name car makers see their status drop, other Chinese manufacturers are seeing their profiles improve, he added.
"Chinese companies are joining these bids because they are short of confidence in their technology and management systems. … As a Chinese car brand, it is very hard to get into the market in foreign countries," he said.
Efforts by leading Chinese car manufacturers like Geely and Chery Automobile Co. to unveil their own made-in-China luxury cars have largely fallen flat, as evidenced in car dealerships in the country's major centres.
"In my opinion, there are no real luxury cars produced by domestic car brands so far in China.
"They mainly produce cars to meet the needs of ordinary consumers," said Guo Yong, a financial manager at the Beichen Yayuncun Auto Trading Centre in Beijing.
What's left is for such companies to try to capitalize on foreign offerings - putting in offers for companies like Opel and Volvo in hopes of gaining new technology or a management style that will give them a competitive edge at home, as well as a way into the global market.
However, until the industry begins to consolidate or until government policy changes, analysts warn further bids on foreign brands may follow the route of the Hummer bid, since the formal government position is to encourage companies to buy technology or suppliers, rather than foreign brands.
"I think they're always going to hit that question of what's the benefit to the company, what are they going to learn, what technological abilities are they going to acquire.
"At the end of the day, they're just taking on a car company that is struggling in the global market," J.D. Power's Mr. Bonnell said.
"I think when they look closer, they'll find it's a tough haul and they'll find it hard to compete in that."
Special to The Globe and Mail