Goldman gets into Chinese car industry
Filed under: Goldman Sachs
Goldman Sachs (GS) will put $250 million into Chinese car company Geely, according to several media reports. There is speculation that the money could be used for Geely to ramp up its manufacturing, or to make a bid for Volvo. Goldman's investment will be done through convertible bonds.
The capital infusion will probably be one in a long line of foreign capital being put into China's auto sector, if the central government will allow it. However, China may decide that it wants to fund its own car companies so that it reaps the benefit of any returns. Either way, the cash available will be plentiful as it would be hard to find a better manufacturing industry investment anywhere.
China will probably pass the U.S. as the world's largest car market this year. About 12 million light vehicles will be sold there this year. The largest country in the world, based on population, should support rapid growth in the auto industry for years; a tremendous number of Chinese still do not own cars.
The most direct way for banks to get capital into the Chinese market may not be to put the money into local companies which are largely controlled by the government, but to invest in large international companies which already have significant market share in China. It may be that firms like GM and VW are willing to take investment capital in their Chinese operations to super-charge growth. GM in particular may need additional money due to its weak balance sheet.
The race to get into the Chinese car market is now underway, so a lot of money is likely to chase the opportunity. This will probably give the auto companies access to very inexpensive capital.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
9-21-2009 @ 7:57AM
Joe Duggins said...
The Chevrolet Aveo, a compact car built by GM’s Korean unit, Daewoo, is currently the lowest priced car sold in the U.S. retailing for as low as $9300 after all discounts have been applied [MSRP is currently set at $9890 for the “Special Value” models]. A 16 valve 1.6L I4 mated to a 5 speed transmission is standard and Chevy kicks in an AM/FM radio for good measure. Beyond that, the car is truly stripped.
On the other hand, two Chinese automakers are preparing to enter the U.S. market, likely as soon as summer 2007. Selling 2008 model year cars, both the Geely Automobile Company and the Chery Automobile Company are working with U.S. representatives to build nationwide dealer networks. Chery, which will have to change its name after losing to General Motors in a court decision over their name [too close to Chevy], has a model currently called the “QQ” based on the Daewoo Spark which they would like to bring to the U.S. Along with as many as four other models, the cars will range in price from just under $7,000 to as high as $20,000. Geely has similarly priced cars that they plan on marketing too.
So, what does this mean to the market? Plenty. Besides the Aveo, numerous other small cars are marketed in the U.S. including Toyota’s Scion brand, the Honda Fit, Nissan Versa, Saturn ION, and offerings from Kia and Hyundai. Some of these vehicles come better equipped than the base Aveo, but for the most part comparably equipped entry level models with air conditioning are each retailing for about $12,000.
Even after air conditioning and certain safety measures [like air bags and better fenders] are added to entry level Chinese vehicles, it is expected that comparably equipped Geely and Chery models will still retail for between $8-8500. This translates into a price drop of as much as 30% compared to competing models.
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