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The acquisition of General Motors' Strasbourg branch in France is underway.
Although Weichai Power immediately issued an announcement saying that “there was no intention to acquire this companyâ€, relevant officials of Weifang Foreign Trade and Economic Cooperation Bureau confirmed to reporters that Weifang Diesel had indeed been in contact with General Motors to reorganize this French factory.
As a result of the financial crisis, many European and American auto makers were stuck in bankruptcy. This is considered to be a good opportunity for Chinese companies to use overseas bargain-hunting.
Earlier this month, Weichai Power had just reorganized a diesel engine plant in France at a low price. According to relevant sources in Weichai, Weichai Power achieved low-cost overseas expansion by reorganizing the foreign automobile factories in the crisis.
Weichai Power is the largest auto parts and components enterprise group in China with its powertrain (engines, transmissions, axles) and commercial vehicle parts. The output of gearboxes is the largest in the world.
The GM Strasbourg branch, which may become Weichai Power's "new prey," is a production-driven factory that employs 1200 technicians in addition to 1,200 employees. In addition to General Motors, the factory also supplies products for BMW. In 2008, the company's annual profit reached 44.4 million euros.
In the midst of a global recession in the automotive industry, it is difficult for the multinational giants such as General Motors to be self-reliant. SMEs are even more vulnerable. This has provided opportunities for Chinese companies eager to develop overseas.
An insider of Weichai Power told the reporter that Weichai Power (Hong Kong) International Development Co., Ltd., a wholly-owned subsidiary of Weichai Power, just completed the low-cost acquisition of Baudouin Co., Ltd. in France this month.
Founded at the beginning of the last century, Baudouin Inc. is a global shipping provider that produces high-end, high-power diesel engines of 16 liters and above. As the company's business was mainly export-oriented, it suffered heavy losses in the financial crisis and entered the bankruptcy process at the end of last year.
Officials from the Foreign Trade and Economic Cooperation Bureau of Weifang City said that Boduuan was France’s last maritime diesel engine plant. Six companies competed in the initial competition. The court finally approved Weichai Power's restructuring plan. Weichai Power purchased Bauduen for a low price of 2.99 million euros and invested 5 million euros to restore its production capacity. Such low prices were unthinkable before.
"Through the acquisition of the French Baudouin company, Weichai Power has gradually established a marketing network from its purely export products, and has developed overseas direct investment to build factories. The process of internationalization of enterprises has been greatly enhanced," said Weichai Power.
Weichai Power also used low-cost overseas mergers and acquisitions to fill the technological development gap. At present, Weichai Power's engine products are mainly concentrated below 12 liters, while Baudorn Company is mainly based on high-power engines of 16 liters and above. At the same time, Weichai Power through overseas acquisitions, can also use the European factory to effectively avoid the risk of exchange rate fluctuations when exporting, occupying the local market more cost advantages.
Wang Fengyi, general manager of Weichai Import and Export Company, was worried that the appreciation of the renminbi and the depreciation of the euro will reduce the cost of products in Europe by about 30%. In 2009, the export of power products (excluding exports of vehicles) is expected to decline by about 30%.
In fact, Weichai Power has been targeting overseas markets for a long time. In February 2007, Tan Xuguang, head of Weichai Power, had an interest in Delphi Corporation’s North American portion of its bankruptcy protection application, but ultimately failed to make it.
Although the financial crisis is widely believed to contain opportunities for overseas mergers and acquisitions, analysts at GF Securities' automotive industry pointed out that opportunities for low-cost mergers and acquisitions of overseas companies also pose potential risks.
The analyst said that after Weichai Power acquired the Hunan Torch, internal integration still needs improvement. The acquisition of overseas factories also presents challenges in the integration of industry and culture. At the same time, the union power in Europe is very strong and the requirements for labor welfare benefits are even more stringent. In the event of mergers and acquisitions by domestic companies, layoffs are by no means an easy task.
An insider of Weichai Power stated that during the merger and acquisition, the French local government did put forward guarantees for the employment of the employees, guaranteeing the relevant conditions for leaving the diesel engine factory in France for 15 years.
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