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BAIC's Opel bid setback 'expected'
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09:25, July 24, 2009

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Although Beijing Automotive Industry Holding Co (BAIC) was excluded from bidding for General Motor's Opel unit in Europe yesterday, the setback was along expected lines, industry analysts told China Daily.

"BAIC being out of the Opel race is as expected. From the start, I had said that there was only a very slim chance of BAIC bagging the Opel bid, especially since there was strong competition from Magna (the Canadian car parts maker and one of the key bidders)," said Jia Xinguang, chief analyst with the Chinese National Automotive Industry Consulting and Development Corp.

"If GM sells Opel to BAIC and agrees to its local production as it had proposed, the US car maker would have faced direct competition from the Beijing-based automaker in the Chinese market, where GM is focusing its investments to ease pressure (from falling sales) in western markets," said Jia. "Nobody will look to invite trouble for themselves."

In the first half, GM sold about 1,000 imported Opel cars in China, even as its total sales in the country hit a record high of just over 800,000 units.

When contacted, GM's chief negotiator for the sale of the Opel brand, John Smith said in an emailed statement to China Daily: "We had a good and thoughtful discussion around the key operating metrics and key issues associated with the three final offers we received on Monday evening, (and) we have agreed to continue detailed talks with both Magna and RHJ International to secure Opel's future."

BAIC was reportedly offering to invest 660 million euros for a 51-percent stake in Opel, and was seeking 2.64 billion euros in loan guarantees from the German government. It was also considering producing Opel cars in China.

"That (producing the Opel locally) also shook the German government's confidence and its evaluation of BAIC's bid, as it would have directly impacted the employment situation within the European nation," said Jia.

As for BAIC itself, analysts said they believed Opel was not a worthy and necessary purchase, as it would have dragged down China's fifth largest automaker.

"I cannot think of any convincing reason why BAIC should buy Opel, although I admit that BAIC was qualified for the deal," said Cheng Yuan, a senior auto industry columnist with Economic Daily.

"Does it need to buy production lines to boost capacity? Can it maintain the brand value after the handover?" Cheng asked.

Moreover, "if BAIC's bid for Opel had been successful, how could it have coordinated and balanced its relationship with its other two foreign joint venture partners, Daimler AG and Hyundai Corp?" said Jia.

For BAIC, a big Chinese automaker with no background in overseas acquisitions, the failed bid, however, was a learning experience in its future global expansion plans, said Zhong Shi, an independent auto analyst.

"BAIC can learn a lot from the Opel bid 'debacle', such as negotiation skills, transaction processes and cooperation with financial agencies, which are necessary experiences for its future overseas expansion plans," said Zhong.

In the first six months of this year, BAIC reported a net profit of $370 million, up 78 percent over the same period a year ago.

Source:China Daily

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