China comes for us

Famed broadcaster Paul Harvey couldn’t contain his disgust anymore in 1988. Globalism had turned against the United States, he railed; the Japanese were purchasing American corporations and, to add insult to injury, they were doing it with our money. That’s right, Japan had harvested billions in American dollars in a huge, multi-decade trade deficit, but now that money was finally being reinvested in America: Japan was using it to buy up our beloved home-grown corporations.

Harvey was just a little late to the game. After all, Nippon Kokan Steel had tried to purchase Rouge Steel Corporation from the Ford Motor Company back in 1982. As early as 1986, headlines across the country stated that Japanese investors were beginning a buying spree of commercial real estate in America. The following year Mobil Corporation announced a move out of its New York skyscraper, which was being sold to Japanese interests, and then Firestone sold to Japan’s Bridgestone in 1988.

What triggered Paul Harvey’s cry that The Japanese are Coming, and his meltdown over this foreign acquisition movement, was that Japan had purchased the Chicago Hyatt Regency. Shortly thereafter, Columbia Pictures Entertainment was purchased by Sony and then Mitsubishi purchased half of Rockefeller Center. Oh, but the crowning indignity was when the Japanese bought our famed Pebble Beach Golf Course in 1990, for what was then considered an obscene amount of money.

Of course, the blame for the selling of famed American corporations and property was placed squarely on the shoulders of Americans who had purchased their exceptional home stereo systems in the early Seventies, their Sony Trinitron TVs a few years later, and then Honda Accords and Toyota Cressidas in the Eighties. Our consumer selfishness — wanting to own exceptionally engineered products, even when we had to pay a premium to do so — was leading to the downfall of the American corporation and its workforce. When we were confronted with the enormity of what we had done, apparently our guilt could only be soothed by purchasing even more of Japan’s exceptional products to rebuild our shattered self-image.

Then a couple of funny things happened. First, Japan had a financial meltdown of its own, partly because its real estate bubble collapsed and partly because of the country’s overall indebtedness. This would lead to what’s been called originally Japan’s Lost Decade, and then The Lost 20 Years. Michael Shurman of Time magazine pointed out that many of the worthless corporate loans happened because Japan’s banks kept lending to famed Japanese corporations even after they had stopped being profitable, years before the crash.

The other issue at work here was the new kid on the block. China’s rise as a low-cost manufacturer of consumer trinkets and baubles; it would soon become proficient enough to build our computers, cell phones and, in time, our automobiles. At the risk of sounding like a hysterical 1988 Paul Harvey, in China’s case we not only gave them our dollars to come back and buy our corporations, but in this case, we actually taught them industrial design and engineering. With automobiles, we showed them how to build and operate modern factories and gave them half the profits just so we could build our cars there.

To truly understand what is happening today, we need to backtrack to 1984. That year the last of the Boomers were looking forward to their 21st birthdays, Prince owned the charts with “When Doves Cry,” and the Chrysler minivan first made its appearance as a family mover — before the term “Soccer Mom” made that vehicle seem too feminine for daily road warriors. Meanwhile, over in China that year, American Motors started producing its Jeep Cherokee in the first automotive joint venture with the communist nation’s Beijing Automobile Industry Corporation. That’s right, Jeep was the first automotive joint venture in China, although Volkswagen soon made its appearance and changed that Chinese industry completely.

Beijing Jeep was never truly a thriving enterprise. The Cherokee was not considered a luxury vehicle at the time in the Orient, just another truck variation that those Chinese who could afford to buy it mostly ignored. By the end of the decade the Chinese government was purchasing virtually all the Jeeps coming off that assembly line, which infuriated the state officials assigned to drive those vehicles. On the other hand, Renault would sell its partnership in American Motors to Chrysler, which had really wanted that company just to get its hands on the Jeep division.

Chrysler’s Lee Iacocca promised to keep building AMC products and distribute Renault products through AMC dealerships, and he paid only about $1.5 billion for everything. Not bad; the licensing rights for the Jeep name would bring in around $600 million in many years, not to mention the $50 million flowing in annually from Beijing Jeep. Without ever building a Jeep or American Motors Ambassador, in three good years Chrysler got all of its investment back without lifting a finger.

But back to the year 1984. Since the Chinese were not buying homemade Jeep Cherokees gladly, another new Chinese car company, Great Wall Motors, came into existence. This group, which started life as China’s pickup truck manufacturer, didn’t even attempt to build its first sedan until 2010. By then it was renowned for its trucks and SUVs; last year, sales of its products worldwide passed one million — and that was a 26 percent increase in sales from the previous year.

Then came the stories claiming that Great Wall is the Chinese vehicle manufacturer that may have approached Fiat Chrysler about purchasing a) the entire company, b) Jeep and Ram divisions, c) just Jeep, d) has just talked about it publicly without talking to Chrysler at all, or e) this entire story is untrue. It should be noted that Great Wall is not the current joint venture partner of either Chrysler or Jeep in China. No, Beijing Jeep finally met its end in 2005, and today Guangzhou Automotive is Chrysler’s partner. Nobody knows whether this acquisition will come to pass or not. But according to Bloomberg BusinessWeek, China has authorized $1.5 trillion for outside acquisitions of foreign corporations over the next decade. Suddenly it feels like the 1980s all over again; only, instead of Japan, China is the Oriental country with cash in hand that we fear most

The real prize here is Jeep; many analysts believe that, as a standalone company, Jeep is worth more than all of Fiat Chrysler combined. But the danger in buying just the most profitable part of a corporation today is the fact that tomorrow it might be the corporation’s worst performing part, while other weak divisions return to real strength. When Daimler purchased Chrysler back in 1998, the Auburn Hills manufacturer was the most profitable maker of cars in North America, with a full line of vehicles. Today there are only two vehicles left that put “Chrysler” on the rear deck lid: its exceptional 300 sedan and the new Pacifica minivan. That’s it.

As for Jeep, it’s been owned by Willys Overland, Kaiser, American Motors, Renault, Chrysler, Daimler, and Cerberus Capital (Mis)Management — and was finally given away for free to Fiat.

And now the rumor is that the Chinese claim they want it, or maybe even all of Chrysler. And, though it would make Walter himself spin in his grave and wound our personal pride, a Chinese automaker would do well to purchase the entire company. After all, it would immediately give them thousands of North American dealerships from which to sell their own Chinese-made products, plus the vehicles currently built by Fiat Chrysler. As a foreign operation, they could pick and choose which vehicles to keep producing and which to dump, without the political pressures of keeping plants open for the sake of keeping a plant open. It should be remembered that Lee Iacocca promised to keep AMC’s Kenosha, Wisconsin, plant open when he bought American Motors; but that pledge didn’t last for long after the signatures were put on the contract.

Then again, what happens in the next few years and earns miles of print space may be the same things that, a decade from now, get unwound and resold again. After all, the business media all gushed that Daimler’s buying Chrysler was the greatest thing that ever happened to an American car company, but the reverse was true. When Cerberus got Chrysler for a song from Daimler, the media gushed about how brilliant that move was — that putting Bob Nardelli, a real outsider to the automotive industry, in as CEO would change everything for the better because Detroit badly needed a fresh set of eyes to remake itself. That wasn’t true, either. And we all laughed when Chrysler went to Fiat for zip; but, after a decade of underwhelming management, that was the one move that made the company whole again.

As for China’s being out to buy the world, we’ve been there before, too. It’s like a repeat of Japan’s overseas acquisitions in the Eighties — which in no way ended well for Japan. They bought high and sold low, and ended up with an aging workforce at home and a truly stagnant economy in spite of interest rates’ being near zero to encourage any and all investment. Oddly, now that I’ve written that line I’m not sure who it applies to more — Japan or the U.S. Well, this what happens when no one bothers to understand the world’s economic history: It gets repeated often.

Note from Ed: From the time of completion of this column Great Wall has stated they have not talked to Chrysler, and seemed to have backed up on claiming they would be interested in Jeep. Which begs the question, did Chrysler create this entire series of rumors?

This story was originally published August 25, 2017 at 11:13 AM with the headline "China comes for us."