MG Rover and SAIC to buy FSO-Daewoo?

Financial Times

MG Rover and its partner Shanghai Automotive Industry Corp, China's largest carmaker, are in talks about making a joint acquisition of the Polish car operations of South Korea's bankrupt Daewoo Motor.

Rover and state-owned SAIC made an approach this month about taking over the Daewoo-FSO plant after it appeared that AvtoZAZ of the Ukraine - the factory's biggest customer - was the only bidder.

People familiar with the negotiations said that the SAIC/Rover approach was not yet a firm bid. "It is at the level of renewed interest," said one insider. "It is not rushing along headlong."

The approach is the first attempt by a Chinese car maker to buy a European producer. It will confirm fears among European and US makers that they are likely to face serious Chinese competition in home markets. Michael Dunne, president of Automotive Resources Asia, said the Chinese were keen to gain engineering, design and production skills rapidly and saw acquisitions as the quickest way.

"There's no doubt the Chinese companies have cash and that they can buy," Mr Dunne said.

SAIC is preferred bidder for Korea's SsangYong Motor, a maker of sport utility vehicles driven into the hands of creditors in 1999 in the wake of the south-east Asian financial crisis. If it succeeds it will be the first acquisition abroad by a Chinese carmaker. SAIC is flush with cash thanks to its ventures with Volkswagen and General Motors, the market leaders in China.

But it has little expertise in vehicle design or engineering, something it is trying to gain through its Rover venture.

It does have experience of Daewoo, as its links with GM allowed it to buy a 10 per cent stake in GM Daewoo when the US company took control of most of Daewoo Motor two years ago. The Polish plant was one of the assets GM chose not to buy, leaving it in the hands of creditors, including the Polish government.

Rover spent two years trying to take control of the Polish operations with the aim of building outdated models for east European markets. But it abandoned its negotiations during the summer to focus on securing a development and manufacturing joint venture with SAIC.

Nick Stephenson, vice-chairman of Rover, confirmed the Polish talks had restarted with SAIC's involvement. "We are negotiating. SAIC has confirmed they are interested in the deal, so we have gone back together to the negotiations." The plant made 34,000 cars last year, well below its peak of 200,000 in 1999.