The phrase “what’s good for GM is good for the US” clearly doesn’t have the same resonance now as when it was coined half a century ago. As the US auto giant became the largest ever industrial bankruptcy in American corporate history this week, the stock and currency markets took the news in their stride. GM has been in decline for so long that its demise no longer has the capacity to shock.
But investors shouldn’t just ignore the story. Its significance is not that GM is collapsing. The interesting thing is who is rescuing its European arm, and what that tells us about how the global economy is changing. The car-maker’s two European brands – Vauxhall in Britain and Opel in the rest of Europe – are being bought by a Russian-backed consortium. Within a few years, they will spearhead an emerging Russian auto industry.
One of the big themes emerging from the credit crunch is the transfer of global wealth, power and influence from west to east, from the old economies to the new. The Brics (Brazil, Russia, India and China) are rising fast, not just as manufacturers of cheap goods, but as developed economies, which, in many ways, will be better equipped to compete in the 21st century than their older, more traditional rivals. Over the next decade, they are likely to embark on a huge acquisition spree in both America and western Europe, buying up brands, technologies and expertise.
And that means huge opportunities for investors and the City. Work out what kind of assets the Brics will need, and there will be money to be made. The takeover of GM’s European assets is just one example. The deal was fronted-up by Canadian auto-parts company Magna, but in reality it looks like a Russian takeover. True, the Canadian group will own 20% of GM’s Opel unit. But another 35% will be owned by the Russian bank Sherbank, while GM hangs on to another 35%. Crucially, the industrial partner for the new entity will be Russia’s GAZ, best-known as a truck-maker, but which also owns the Volga car brand.
It isn’t hard to see how this is going to play out. GM will have enough problems without worrying about a European unit in which it is a minority shareholder.
The Canadians don’t have the expertise to become players in such a competitive global industry. With Russia set to become the largest car market in Europe – it’s Europe’s biggest country, and doesn’t have many cars right now – GAZ will increasingly become the dominant partner. A decade from now expect to see plenty of Russia-built Opels on the roads (the Vauxhall brand may well be quietly forgotten – Chelsea is the only part of London that interests the Russians).
That’s just one deal among many.
We have already seen India’s Tata take control of Jaguar and Land Rover. The Chinese computer group Lenovo bought IBM’s personal computer business. Those are only the tip of a very large iceberg. The credit crunch is accelerating the shift of power from west to east. Where once a financial crisis would have hit emerging markets hardest, they sailed through this one largely unscathed. The Brazilian market is up by 40% this year. India is still growing at nearly 6% a year, and China at more than 6%. Russia has taken a hit largely because of the fall in the oil price but is recovering fast – its stockmarket is among the world’s best-performing this year.
The Brics no longer just sell cheap manufactured goods and raw materials. They’re increasingly creating the biggest, most dynamic firms in the world. Of Fortune’s ranking of the top 500 global firms, 62 are now from emerging markets, up from 32 in 2003. That number is only going to grow.
For investors there is an opportunity there – and one that goes beyond just buying some emerging markets tracker funds for your portfolio. The new Bric giants will have to raid plenty of Western assets to fulfil their global ambitions. They need brand names and they need technology. And they need them in a hurry. They need the know-how to create large-scale manufacturing operations. And they need the tradition and name-recognition that comes with a brand that has been built up over a century. Volga needs a company like Opel to turn itself into a serious player in the global auto industry. Likewise, Lenovo needed the IBM brand name to turn itself from an assembler into a global business.
So where should investors be looking? Firms such as British Aerospace have the technology that the Bric firms may well want. So do the pharmaceutical giants such as GlaxoSmithKline or AstraZeneca. Consumer goods firms such as Unilever are packed full of brand names. Mobile phone groups such as Vodafone have both the brands and the technology.
It is fanciful to speculate about particular deals. Many companies will have no interest in selling themselves. Even so, the next boom, when it comes, will be all about brokering the takeover of European and American assets by the rising powers of the global economy.
It might be selling the family silver. But if it’s going to be sold anyway, there’s no reason not to try and make some money out of it – and plenty of people, not least in the City, certainly will.