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Monday, July 19, 2010

Chinese enter U.S. by acquiring U.S. suppliers

After years of breakneck growth at home, China's parts makers are starting to reinvent themselves as global suppliers.

No longer content with shipping parts to North America, Chinese suppliers are acquiring U.S. companies and factories, often at bargain prices. In many cases they want to service North American customers -- particularly General Motors Co. and Ford Motor Co., which already do business with them in China.

In early July, for example, Tempo International Group, a Beijing supplier of brake, chassis and powertrain components, and its financial backer, the municipality of Beijing, formed a joint venture called Pacific Century Motors to purchase GM's Nexteer steering components unit for a reported $450 million.

"We want to become a mainstream supplier," Tempo Chairman Tianbao Zhou said in an interview last week at GM headquarters. "We want to blend in to the American culture."

Tempo is following in the steps of Wanxiang Group Corp.

In 1969, Lu Guanqiu, a former apprentice blacksmith, launched a farm tool repair shop with his wife, five partners and $500. Later he started producing universal joints for automakers.

Now his Wanxiang Group Corp. generates global sales of $8 billion a year. Wanxiang is in Hangzhou in China's Zhejiang province, on the eastern coast just south of Shanghai.

In 1994, Lu launched Wanxiang America Corp. in Elgin, Ill. In the late 1990s, the U.S. operation bought five distressed chassis component suppliers, keeping their American management in place.

Lu has continued buying. In 2007, the company purchased a driveshaft operation in Monroe, Mich., from Ford Motor Co.

The company's U.S. sales totaled $1.3 billion last year. At a recent industry event in Detroit, Wanxiang America President Pin Ni said he would consider other acquisitions of distressed suppliers.

Other Chinese suppliers will follow, says C. Peter Theut, the founder of China Bridge, an Ann Arbor, Mich., consulting firm that helps complete mergers of Chinese and U.S. companies. Over the past year, "We've been approached by 12 Chinese companies that want to come West," Theut says. Six were auto suppliers, he says.

Chinese cash

The Chinese generally seek small U.S. companies with niche products and annual sales of $20 million to $150 million. "The Chinese companies will come in with cash and supply the Americans with resources that they couldn't get from U.S. lenders," Theut says.

Although it's unclear how many Chinese automotive suppliers do business in the United States, the Detroit Regional Chamber counts at least 41 in the Detroit area alone. Companies range from small suppliers to the parts units of FAW Group and Shanghai Automotive Industry Corp., two of China's largest automakers.

"A number of Chinese suppliers want to get into the North American market," says Wayne County (Mich.) Executive Robert Ficano, who has led six trade missions to China. "And the automakers say, 'If you want to do it in the United States, you need to locate close to us.' "

Typically, these companies start small with a U.S. sales office and perhaps a technical center. After a few years they might start shopping for U.S. factories, says Ficano.

That was Tempo's approach -- financed by a Chinese government body. The Beijing municipal government has set up a $15 billion fund to help local companies, including Tempo, make acquisitions.

"With the support of Beijing, we are trying to take the company to the global stage," said Tempo's Zhou. With 2009 sales of $2.1 billion, Nexteer, of Saginaw, Mich., provides Tempo a platform "to build a much larger company."

Beijing's deep pockets offer Nexteer growth possibilities that it hasn't had in years. In 2006, bankrupt Delphi Corp. put its Saginaw Steering Gear unit up for sale. After Delphi was unable to find a buyer it sold the operation back to GM in March 2009. GM renamed it and put Nexteer up for sale in January.

As Delphi and then GM struggled through bankruptcy, Nexteer was forced to conserve cash. "I had to turn down growth opportunities because we didn't have the capital," said Nexteer President Robert Remenar.

Tempo's negotiations to buy Nexteer went well in part because the Chinese company had a track record on acquisitions. In March 2009, BeijingWest Industries Co. -- a partnership of China's Shougang Corp., the municipality of Beijing and Tempo -- bought Delphi Corp.'s brake operations for $100 million.

The Chinese influx will continue over the next couple of years, Theut predicts. "It's the U.S. suppliers that are so desperate, and the Chinese companies recognize that."

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