Consolidation progress in sight for mainland car industry

PUBLISHED : Monday, 17 December, 2007, 12:00am
UPDATED : Monday, 17 December, 2007, 12:00am

Beijing's years of efforts to consolidate the fragmented car industry may finally see progress with a soon to be announced tie-up between SAIC Motor Corp and Nanjing Automotive Group (NAG), which would involve the State Council's mediation.

The deal, expected over the Christmas period, is an indication that the mainland's largest carmaker SAIC will take the first step to put consolidation into practice.

Details about the terms of the tie-up were not available.

'Most carmakers are state-owned and local governments are reluctant to push cross-border mergers,' said Fitch Ratings car industry analyst Matthew Kong in Beijing. 'Local governments are unwilling to lose control over carmakers, revenue from corporate taxes and the employment the companies provide.'

According to Fitch statistics, China currently has about 150 vehicle manufacturers.

'[China] needs to participate actively in the globalisation process, and create world-class [car] manufacturers with their own competitive edges,' said Xu Heyi, chairman of state-backed Beijing Automotive Industry Holding. 'Beijing has set an ambitious goal for the industry by developing two or three large [car] enterprises that can compete with the global giants in terms of scale and strength.'

SAIC and NAG's parent Yuejin Group in July signed a letter of intent to form a strategic alliance to co-operate on business areas ranging from vehicle manufacturing to services. Industry watchers expect a 'complete union' of the two companies to be realised subsequently.

NAG chairman Wang Haoliang announced the possibility of co-operation after SAIC chairman Hu Maoyuan said in April that the company would invite NAG to form an alliance as a means of minimising competition over the different MG Rover brands and technology.

SAIC and NAG went head-to-head three years ago to bid for defunct British carmaker MG Rover. NAG outbid SAIC in 2005 to take over the assets and brands of MG Rover for US$87 million. SAIC paid a far higher US$136.55 million to acquire the technology and design rights to the Rover 25 and Rover 75 in 2004.

SAIC sold 1.34 million vehicles last year, while NAG sold 100,000.