Carmakers brace for industry revamp in economic uncertainty

Whether the latest policy directive to consolidate the car industry is old wine in a new bottle, the central government could not have chosen a better moment to remind the domestic industry that the tough economic times offer potential takeover opportunities.

As cash-starved international carmakers like Ford Motor and General Motors Corp scout for buyers - with Chinese carmakers the most sought after - to acquire their brands, power-train or financing arms, Beijing has emphasised that the country's carmakers are 'not ready' for overseas deals.

The implications are obvious: Fixing business at home is top priority and domestic consolidation should be considered by large carmakers.

A Shanghai Securities News report in February spelt out a government plan that picked Shanghai's SAIC Motor Corp, Jilin-based First Auto Work Group, Hubei's Dongfeng Motor and Chongqing-based Changan Group to spearhead national consolidation that would result in companies each capable of generating 2 million units in annual vehicle sales. Beijing has already issued guidelines to provincial governments.

At the regional level, the government has also selected four smaller companies for mergers - Beijing Automotive Industry, Guangzhou Automotive Industry Corp, Anhui-based Chery Automobile and Shandong-based China National Heavy Duty Truck.

Among the four carmakers, Beijing Automotive said it aimed to generate revenue of 100 billion yuan (HK$113.39 billion), with about 10 billion yuan to come from acquired target producers.