Reorganization of automotive companies: expansion of desire is more important than merger

After many years of efforts, Dongfeng and Fuqi finally signed a cooperation agreement. This is considered to be an important event in practicing cross-regional mergers and acquisitions and increasing industrial concentration. It also ignited the ardent expectations of the industry for more mergers and acquisitions. According to the analysis, the current drive to promote cross-regional mergers and acquisitions is more of local government's expectations for the development and growth of pillar industries, and the desire of auto companies to expand themselves. The true survival of the fittest, mergers and reorganizations still lags behind, and we must guard against blind expansion and lead to Chinese autos. The industry is still "big but not strong."

It is understood that there are still more than 130 automobile manufacturers that have production qualifications in China and the automotive industry is still in a state of dislocation and chaos. Su Hui, executive director of the branch of the China Circulation Association’s tangible automotive market, believes that in this situation, the auto industry cannot be strengthened, and mergers and acquisitions are the major trend.

At the beginning of 2009, the state issued the "Auto Industry Adjustment and Revitalization Plan" and said that it encourages SAIC, FAW, Dongfeng and Changan to implement mergers and reorganizations nationwide and supports regional mergers and reorganizations of BAIC, GAC, Chery and CNHTC. Subsequently, in a number of documents, the country urged multiple industries led by automobiles to implement mergers and reorganizations to increase industrial concentration.

According to the Ministry of Industry and Information Technology, the concentration of China's automobile industry in 2012 was 87.3%, which was only 2.7% worse than the 90% planned by the government in 2015. The industry believes that the cooperation between Dongfeng and Fuqi will promote the completion of this goal.

The industry believes that the current cooperation with Fuqi is not as strong as it is for Dongfeng, but rather it is an early strategic layout, seizing market resources, and expanding its own territory. In fact, the desire of the auto makers to expand is just around the corner. In recent years, major auto makers have formulated "magnificent" capacity expansion plans. By 2015, the six major car makers, FAW, SAIC, Dongfeng, Chang'an, GAC, and BAIC, have achieved a total output and sales target of more than 28 million vehicles. The six major auto makers Chery, Geely, BYD, Great Wall, Brilliance and JAC have achieved their total sales targets. It also reached 12 million vehicles.

According to Luo Lei, deputy secretary-general of the China Automobile Dealers Association, according to this calculation, the capacity planning of China's auto companies will exceed 40 million in 2015. In reality, the 2015 automobile production and sales volume cannot reach this number.

Su Hui, vice president of the China Automobile Dealership Association's tangible automotive market branch, believes that there is no possibility of production and sales of 30 million vehicles in 2015. However, SAIC, FAW, Dongfeng, etc. all want to be the largest one. In this case, the desire of auto companies to expand can only be achieved through merger and reorganization. This can only bring about an expansion of the volume that does not make the auto industry stronger.

The Fuzhou Group, which is wholly state-owned in Fujian Province, has been committed to independent development until 2010, but its overall performance is poor and lacks development potential. Cui Dongshu, secretary-general of the National Passenger Vehicle Market Information Association, said that the autonomy of Fuzhou in recent years has not been smooth, and the joint venture's lack of leveraging on Mitsubishi has led to a slow development of the auto industry. Subsequently, Beiqi, Guangzhou Automobile and Dongfeng contacted and tried to cooperate. Prior to this, Fuqi had contact with BAIC and so on. Once BAIC's acquisition of Fuqi was successful, after the merger of the Mercedes-Benz and commercial vehicle businesses of the two sides, BAIC's strength was expected to increase substantially and threaten other auto companies. The cooperation between Dongfeng and Fufeng has at least avoided this potential threat.

The industry believes that the current merger and restructuring of the automotive industry is still lagging behind the curtain, should guard against the desire for quick success and expansion cause the auto industry "big but not strong." Su Hui said that the automotive industry is a pillar industry in all localities and affects local interests. As a result, local protectionism is serious. As a leading manufacturer of auto manufacturers, there has been no real pressure. Only when market competition causes auto companies to experience real pressure, they must seek backers and channels. When large-scale auto companies begin to seek cooperation, they can usher in true mergers and reorganizations and lead the auto industry to become bigger and stronger.