Can China Save American Automakers?

No, China will not buy GM, Ford or Chrysler. The big three automakers are dead businesses not worth saving. Even if the US government pour tens of billions of dollars in bailing out them now, the companies will die another day.

Why am I so certain American car makers cannot rise from the ashes? It’s quality, stupid. If Americans are honest, they will admit that their cars cannot match the quality of Japanese and German cars. No matter how hard Americans or Chinese or others try, they will not be able to equal the Japanese and Germans in quality.

But not all is lost. Americans are good at innovation, marketing and service. Therefore, the Americans should use their strength to beat Japanese’s and Germans’ and South Koreans' weakness.

How can that be done? It is very simple indeed: change the business model!

Say it again? Okay, it is a bit more complicated than that. It requires a total change of the business model, in fact, a disruptive change. Sergio Marchionne, Fiat CEO, in an interview with Automotive News, predicted as much change ahead.

First, the US government should take over GM and Chrysler. Ideally it should take over Ford as well but the Ford family may not want to sell.

GM is now worth 2.5 billion dollars. Chrysler probably values less than that. Therefore, 5 billion dollars can buy both companies.

Second, the US government should appoint a car czar as rumoured.

Third, this car czar should break GM and Chrysler (and may be Ford) into two design/marketing companies, one engine company, and two assembly plant companies. These companies should all operate independently.

Forth, the two design/marketing companies only design and sell cars. They outsource the manufacturing of their designed cars to the assembly plant companies.

The assembly plant companies, according to the designs, buy engines from the engine company and other parts from other parts companies and assemble them together.

The engine company will specialize in producing the best and most energy-efficient engines. It can sell these engines to whoever wants to buy.

In fact, all of these companies will have right to deal with others such as Japanese, German or Korean car companies.

But the latter have the current business model working for them. They may not be interested in changing the status quo.

On the other hand, the Taiwanese and Chinese don’t have as much stake in the existing model and have incentive to try the American new business model.

You may find this new business model familiar. You are not wrong because it exactly copies the current computer hardware business model.

And who are the big players in the computer hardware business?

America’s Dell, HP and Apple, Taiwan’s Acer, and China’s Lenovo are designers and marketers. America’s Intel, AMD and Nvidia are chipmakers. Taiwan’s Hon Hai, Quanta and Compal are manufacturers and assemblers.

The computer business is constant innovation and cost reduction. If the model succeeds for car business, consumers will benefit and the environment will benefit as new energy-efficient technologies will surely result.

One caveat though, I don’t think Americans alone can pull it off. They need the help of Taiwanese and Chinese - this is, the US needs China and Taiwan to buy into the same new business model to have a sufficient number of competitors in each of the specialized segments so that competition and innovation will make everyone better.
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Human Freedon

What does human freedom mean? Some says it means you can do whatever you want. I think that is an incorrect definition because it evokes randomness. And it lacks meaning and moral content.
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Barack Obama Is the Next President of the US

Yes, he won. The first black president of the US. History was made.
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China's Big and Messy Bureaucracy

China's bureaucracy is a big mess. Yes, it's big and a mess because from top to bottom, there are six levels of government: national, provincial, prefecture, county, township, and village.

In fact, the Chinese constitution only provides four levels of government: national, provincial, county, and township.

Therefore, prefectures and villages are extra-constitutional entities.

And given that the current six-level government setup is too big, much wasteful, and corruption-prone, it's time to abolish the prefecture and village level governments and return to the constitution.
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CITIC Pacific Faces Investigation

Bloomberg reported:

"Citic Pacific faced a formal investigation from the Hong Kong Securities and Futures Commission after predicting HK$15.5 billion ($2 billion) of currency losses from unauthorized trades."
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CITIC Pacific Fell Another 25%

Its market capitalization is down from HK$30 billion a couple of days ago to HK$10 billion now.
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Is CITIC Pacific State-Owned or A Family Business

CITIC Pacific is in big trouble and some market analysts say it's finished.

Yesterday its share price fell by 55% and its valuation is down from HK$30 billion to HK$14 billion.

News media have called CITIC Pacific state-owned. But it's been run like a family business. The wholly state-owned CITIC Group is the biggest shareholder and owns 29% of Pacific, and Larry Yung owns 19%.

Yung is chairman of the board of directors. His son Carl is also an executive director and deputy managing director. His daughter Frances was director of group finance until she was demoted yesterday to take the responsibility of the HK$15 billion loss in a currencies bet.

Although CITIC Group had a 29% stake, its management, led by chairman Kong Dan and president Chang Zhenming, failed to safeguard its interest in Pacific.
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55% Fall of CITIC Pacific

One day after the revelation of a potential loss of HK$15 billion, the stock of CITIC Pacific fell 55% in the Hong Kong Stock Exchange. Its market valuation is from HK$30 billion to HK$14 billion only.

CITIC Group owns 29% of the company, which now values HK$4.1 billion. There is only HK$9.9 billion of the value that the parent company does not already own.

Is it advisable for CITIC Group to loan HK$12 billion to its subsidiary as it's planning to do?
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Who Supervises CITIC Group?

State-owned CITIC Group is one of China's largest investment companies. It is supposedly supervised by the State Council, China's cabinet. But who specifically supervises it? It's not clear. It is like CITIC is a free agent building spiral business empire of numerous financial subsidiaries and non-financial subsidiaries, a very inefficient one at that. The current expected huge loss of HK$15 billion by its Hong Kong subsidiary CITIC Pacific is an example of loose management.

I think it's time to split CITIC Group into two companies, a financial one and a non-financial one. The financial part company should be put under the sovereign wealth fund China Investment Corp. and the non-financial company should be supervised by the State-owned Assets Supervision and Administration Commission.
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Another CITIC Pacific Executive Punished

Hong Kong-based CITIC Pacific expects to lose HK$15 billion. In addition to two board directors resigned, Frances Yung, daughter of board chairman Larry Yung, a director in group finance, was transferred out of the department, to be reassigned.

Larry Yung owns 19% of CITIC Pacific and its parent company CITIC Group in Beijing owns 29% of it.
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CITIC Pacific May Lose HK$15 Billion

Hong Kong-based CITIC Pacific may lose HK$15 billion due to bad bets on currencies. The company had a market valuation of HK$30 billion, and thus it could lose half of its value.

Larry Yung, Chairman of CITIC Pacific, apologized personally and on behave of the board of directors for the loss.

Group finance director Leslie Chang Li-hsien and group financial controller Chau Chi-yin resigned.

The company has taken a loan of HK$12 billion from its parent company CITIC Group, which owns 29% of the listed subsidiary.

If a company loses half of its value, shouldn't more higher-ups resign to take responsibility?
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South Korea Rescues Banks

The Financial Times reports:

"South Korea on Sunday announced a comprehensive rescue package worth about $130bn (£75bn, €97bn) for its banks and companies suffering from a foreign currency liquidity crunch."
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