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A year of innovation, competition, consolidation Milestone deal
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08:57, April 21, 2008

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Milestone deal

SAIC Motor Corp, the top Chinese vehicle producer, clinched a landmark merger deal with Nanjing Automobile Corp in December, the biggest consolidation in the country's fragmented auto industry.

According to the agreement, SAIC's publicly traded unit, SAIC Motor Co Ltd, bought Nanjing Automobile Corp's entire vehicle and core component manufacturing assets for almost 2.1 billion yuan. Nanjing Automobile also injected all other components, services and trade assets into Donghua Company, its existing joint venture with parent SAIC. In return, Nanjing Automobile holds 320 million shares of SAIC Motor Co Ltd, the listed arm, and a 25 percent stake in Donghua.

The deal helps the two automakers avoid product overlap and use resources more efficiently. Mergers and acquisitions are badly needed for China's auto industry where there are more than 100 vehicle makers. Dongfeng Motor Corp, China's No 3 auto group, is reportedly in merger talks with Hafei Automobile Corp, a local mini van producer.

Surging exports

Vehicle exports from China are now in the fast lane, mainly powered by local carmakers such as Chery, Geely and Brilliance. The country's vehicle exports surged by 79 percent to 612,700 units last year from 2006. China-made vehicles are exported to overseas markets including Russia, Southeast Asia and Middle East. Exports are predicted to hit 1 million units this year and many Chinese carmakers are building more overseas plants to boost sales. Chery plans to increase the number of its foreign factories from seven to 14 by 2010. Chery, BYD and Changfeng are even eyeing the United States, the world's biggest and most-competitive vehicle market.

Chery on top

Chery, the top Chinese brand in the passenger car sector by sales volume, teamed with a range of foreign partners to raise its sales rapidly and acquire advanced know-how. The company based in the eastern city of Wuhu, struck a deal with US carmaker Chrysler last July to make small cars under badges from the Detroit-based group for the US and European markets.

In August, Chery agreed to establish a 50-50 joint venture with Italy's Fiat to produce Chery, Fiat and Alfa Romeo cars with an annual production capacity of 175,000 units for both domestic and foreign buyers. In January this year, Chery was approved to form a 150,000-unit venture with, Quantum LLC, the US arm of Israel Corp, to produce sedans and SUVs for the local and overseas markets. The Chinese carmaker aims to up its annual sales to 1 million units by 2010 from 381,000 units last year.

Strong momentum

The vehicle market in China remains on the fast track, despite price hikes of oil and raw materials. Sales jumped 21.4 percent year-on-year to 2.58 million units in the first quarter of this year with sales in March alone hitting 1.06 million units. Full-year sales are expected to reach 10 million units, up from 8.79 million units in 2007.

Tariff row

The United States, Canada and the European Union in February filed complaints with the WTO about China's tariffs on imports of auto parts. A WTO expert panel has made a preliminary decision that China unfairly restricts auto parts imports, with a final ruling expected later this year. China has not responded officially. According to China's auto policy, imported auto parts are considered a whole vehicle if they account for 60 percent or more of the value of a whole vehicle, and will be subject to 15 percent higher tariffs starting from July 1 this year.

All-new brand

Japanese carmaker Honda Motor Co's joint venture with Guangzhou Automobile Corp announced in July that it would create an all-new non-Honda brand, a bold move as all major Sino-foreign passenger car partnerships are assembling only overseas marques.

The venture, called Guangzhou Honda Automobile Co, plans to put the new brand into production in 2010. It will develop a series of new models under the new brand through a newly launched research and development center. The move signals that the joint venture will use a double-brand strategy. It now makes Honda's Accord, City, Fit and Odyssey.

It is unveiling a concept car under the new brand during the Beijing auto show.

JV collapse

Italian carmaker Fiat Auto pulled out of its ailing joint venture with Nanjing Automobile Corp at the end of last year. The joint venture, launched in 1999, suffered consecutive sales tumbles and losses over the past five years due to lack of competitive models, poor management and wrangles between two parent firms. The venture only sold 19,700 cars last year, plunging 38.3 percent from 2006. From 2003 to 2007, the venture changed its marketing and sales chief seven times. The plant of the failed venture will reportedly be bought by Shanghai Volkswagen, which has insufficient production capacity. Fiat has agreed with Chery to restart car production in China.

Logo changes

A phalanx of Chinese carmakers changed their brand logos last year. They include Great Wall, Geely, BYD, Haima, Huatai and Jianghuai. Geely even announced it will spend 3.6 million yuan to commission new logos around the globe. The move is part of their drive to upgrade brand image and go international, but analysts say it is more important for them to increase their development capability and improve quality. Most have bold plans to foray into the overseas market.

Team shake-up

A range of major Chinese auto groups reshuffled their top management. SAIC Motor Corp's Executive Vice-President Phil Murtaugh resigned and was appointed CEO of Chrysler's Asia-Pacific operations. Chen Zhixin, former president of SAIC's car venture with Volkswagen, succeeded Murtaugh. FAW Corp named Xu Jianyi, a former Party secretary of Jilin city in Jilin Province, as its new president. The group's former president Zhu Yanfeng has become vice-governor of the province. Beijing Automotive Industry Holding Corp in February this year recruited Wang Dazong, former vice-president of SAIC, as its general manager.

Green power

Many local and global carmakers, such as Chang'an, Chery, SAIC and General Motors, announced last year that they would put their petrol-electric hybrid models into commercial production in China later this year or in 2009. Hybrid-powered cars appear to be a fairly good option in the industry, which is facing mounting energy shortages and environmental pressures. However, the new-energy cars have not been widely accepted by Chinese buyers mainly due to their high prices. Toyota started making the Prius hybrid sedan in China in 2005. Sales of the model stood at 414 units last year, down from 2,152 units in 2006.

Source: China Daily

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