Another call for consolidation

Govt guideline for handful of large auto groups by 2015

The Chinese government has again called for consolidation in the automotive industry to improve the competitiveness of domestic carmakers.

Guidelines for nine industry sectors issued last week by the Ministry of Industry and Information Technology and 11 other ministries say the auto industry should cultivate three to five large auto groups with core competitive strength by 2015.

The guidelines urge that the nation's top 10 automakers account for 90 percent of the industry's total production by that year.

Mergers and reorganizations between automakers could "integrate resources, optimize product portfolios, reduce operational costs, increase the utilization rate of production capacity and improve development of domestic brands", said the new auto industry guideline.

It also said domestic automakers are encouraged to extend businesses into service sectors such as finance and logistics, while calling for more acquisitions in overseas markets and more mergers among parts suppliers.

The new guideline is likely to give another push to consolidation in the auto industry in the coming years, said industry analysts.

The nation's second-largest auto group, Dongfeng Motor Corp based in the central province of Hubei, will reportedly purchase Fujian Motor Industry Group Co Ltd as it moves to set up a production base in the southeast.

The biggest previous consolidation in the industry came in 2009 when State-owned Chang'an Automobile Group based in Chongqing acquired the two minivan manufacturing subsidiaries of aircraft maker Aviation Industry Corp of China.

Other major acquisitions include Guangzhou Automobile Group's purchase of SUV maker Changfeng in 2009 and SAIC Motor Corp's takeover of Nanjing Automobile in 2007.

Some analysts noted that mergers and acquisitions should be driven by market competition and decisions be made by the companies themselves rather than through government guidelines.

"Any merger or acquisition is finally dependent on the strategies and needs of the companies, while the government is just playing a guiding role," said Lin Huaibin, an auto analyst at consultancy IHS Automotive.

Up to the market

"It's up to the market and not a good idea for government to force any deal," Lin said.

He added that mergers and acquisitions are not the only ways to improve company strength, citing "more feasible approaches" like the cooperation attempt between Chery and Guangzhou Automobile.

Both State-owned companies agreed last November to cooperate in a wide range of areas including R&D, key components, new-energy technology, parts sourcing, international business and the operation of their manufacturing facilities.

The latest guideline is also seen as a signal for stronger government support to big domestic auto groups including SAIC Motor Corp, Dongfeng Motor Corp, FAW Group, Chang'an Automobile Group and BAIC Group.

The top five sold nearly 14 million vehicles last year and accounted for more than 70 percent of the total sales in the country, according to statistics from China Association of Automobile Manufactures.

The top 10 automakers had 87 percent of the total market last year, CAAM data shows.

While 87 percent appears to be a high rate of concentration, fully domestic brands had just a minority share, analysts said.

CAAM data shows that domestic brand passenger vehicles, including minivans, accounted for 42 percent of the total passenger vehicles sales in China last year. If low-cost, low-profit minivans are excluded, the proportion falls to 32 percent.

The nation's leading auto group SAIC Motor Corp reported 4.5 million in unit sales last year, but 1.3 million were vehicles made at the joint venture Shanghai Volkswagen, 1.3 million were from its partnership with General Motors and 1.5 million vehicles were produced at its three-way venture SAIC-GM-Wuling. Its wholly owned passenger car brands Roewe and MG sold just 200,000 of the total.

"If we merged all the automakers in China into one, it won't become a Volkswagen or Toyota as the majority of the products it make would still be foreign-branded vehicles," said John Zeng, director of LMC Automotive Asia Pacific Forecasting.

"The real solution to improve the industry lies in stronger homegrown brands," Zeng said.

hantianyang@chinadaily.com.cn

(China Daily 01/28/2013 page18)