When someone shares with you something of value, you have an obligation to share it with others.
Thursday 16 October 2008
Despite Slowdown, Chinese Automakers Resist Consolidation
A squealing of brakes in the Chinese car market, the second largest in the world, should be sending automakers there scrambling for mergers and alliances, but vested interests are thwarting consolidation.PDF
Despite Slowdown, Chinese Automakers Resist Consolidation
By Fang Yan – Reuters 15 October 2008
SHANGHAI: A squealing of brakes in the Chinese car market, the second largest in the world, should be sending automakers there scrambling for mergers and alliances, but vested interests are thwarting consolidation.
There are more than 100 Chinese auto manufacturers, and many of them are regional players propped up or partly owned by local governments. That leaves a legacy of wasteful investments in excess capacity, while frustrating plans by Beijing to build up a few national champions that could compete globally.
But analysts expect the foot-dragging on consolidation to continue at least in the near term, with profits still sufficient to allow most companies to survive and hope for a rebound in growth next year.
“However inefficient it may be to have so many players out there, versus three or fewer in mature markets,” said Chen Qiaoning, an industry analyst with ABN AMRO Teda Fund Management, “there’s little incentive at the local government level to hand over jobs and tax revenue to outsiders.”
Recent months have brought a handful of rare news media reports on acquisition talks in the Chinese automotive sector.
Two second-tier companies, Guangzhou Automobile Group - which makes cars with Toyota Motor and Honda Motor - and Beijing Automotive Industry, a Daimler partner, have separately sought a stake in the sport utility vehicle maker Hunan Changfeng Motor, said sources familiar with the situation, who asked not to be identified because they were not authorized to speak with the news media.
FAW Group, one of the three largest automakers in China and another Toyota partner, was in talks to take over the own-brand car business of Brilliance Auto, BMW’s China partner, according to news media reports. Brilliance denied any such talks.
Such combinations could ease the fragmentation that has built up heavy overcapacity in the Chinese auto sector.
Changjiang Securities estimates that the 47 major Chinese automakers had a combined annual capacity of 9.59 million units in 2007, far exceeding sales of 6.06 million vehicles.
Consolidation would also parallel moves toward deals in a global industry that is struggling with high oil prices, a slowing economy and a severe credit crisis, including in the United States, which has the largest auto market.
General Motors has had talks about a possible merger with both its major U.S. rivals, Ford Motor and Chrysler, while Cerberus Capital Management, which is Chrysler’s majority owner, has held talks with several automakers.
But despite the increased talk of deals in China, few have actually been completed.
One deal still up in the air is an effort by Nissan Motor’s China partner, Dongfeng Motor, to take control of the minivan manufacturer Harbin Hafei Automobile Industry Group from its parent, the state aircraft maker AVIC II. That deal was put on hold after AVIC II’s government-backed merger with AVIC I, another state-controlled industrial group specializing in aviation.
Analysts also doubted the recent slowdown in the Chinese car market would provide much impetus for mergers and acquisitions.
Car sales fell 1.4 percent in September, in a second month of decline, as economic growth eased. Before August, there had only been two previous monthly sales declines in five years.
The slowdown is taking its toll on profits. FAW Car estimated that its net profit fell about 5 percent in the third quarter, after profit more than tripled in the first half.
Full-year car sales growth in China is expected to slow to 5 or 6 percent this year, according to Rao Da, secretary general of the China Passenger Car Association, a leading industry group, from above 20 percent in each of the past three years.
But China is still a relative bright spot in the global industry, especially compared with the United States, where auto sales have fallen to 15-year lows and the Big Three carmakers have posted heavy losses.
“Chinese automakers lag some of their Asian rivals, especially the Japanese, in terms of profitability,” said Wang Mingcun, an industry analyst with Tianxiang Consulting, “but the bottom line of big auto groups is pretty solid after years of fast growth.”
Rao and other analysts also forecast that China could return to sales growth rates of 10 percent to 15 percent next year, retaining its position as the fastest-growing major car market.
“Unless the market goes really bad and many small players are up to their necks in losses,” said Jane Ye, an analyst at Cazenove Asia, “few would throw themselves into the arms of bigger rivals.”
Foreign automakers have at times taken a role in spurring consolidation in China, but may play less of a role in the years ahead as they struggle with the global downturn.
1 comment:
Despite Slowdown, Chinese Automakers Resist Consolidation
By Fang Yan – Reuters
15 October 2008
SHANGHAI: A squealing of brakes in the Chinese car market, the second largest in the world, should be sending automakers there scrambling for mergers and alliances, but vested interests are thwarting consolidation.
There are more than 100 Chinese auto manufacturers, and many of them are regional players propped up or partly owned by local governments. That leaves a legacy of wasteful investments in excess capacity, while frustrating plans by Beijing to build up a few national champions that could compete globally.
But analysts expect the foot-dragging on consolidation to continue at least in the near term, with profits still sufficient to allow most companies to survive and hope for a rebound in growth next year.
“However inefficient it may be to have so many players out there, versus three or fewer in mature markets,” said Chen Qiaoning, an industry analyst with ABN AMRO Teda Fund Management, “there’s little incentive at the local government level to hand over jobs and tax revenue to outsiders.”
Recent months have brought a handful of rare news media reports on acquisition talks in the Chinese automotive sector.
Two second-tier companies, Guangzhou Automobile Group - which makes cars with Toyota Motor and Honda Motor - and Beijing Automotive Industry, a Daimler partner, have separately sought a stake in the sport utility vehicle maker Hunan Changfeng Motor, said sources familiar with the situation, who asked not to be identified because they were not authorized to speak with the news media.
FAW Group, one of the three largest automakers in China and another Toyota partner, was in talks to take over the own-brand car business of Brilliance Auto, BMW’s China partner, according to news media reports. Brilliance denied any such talks.
Such combinations could ease the fragmentation that has built up heavy overcapacity in the Chinese auto sector.
Changjiang Securities estimates that the 47 major Chinese automakers had a combined annual capacity of 9.59 million units in 2007, far exceeding sales of 6.06 million vehicles.
Consolidation would also parallel moves toward deals in a global industry that is struggling with high oil prices, a slowing economy and a severe credit crisis, including in the United States, which has the largest auto market.
General Motors has had talks about a possible merger with both its major U.S. rivals, Ford Motor and Chrysler, while Cerberus Capital Management, which is Chrysler’s majority owner, has held talks with several automakers.
But despite the increased talk of deals in China, few have actually been completed.
One deal still up in the air is an effort by Nissan Motor’s China partner, Dongfeng Motor, to take control of the minivan manufacturer Harbin Hafei Automobile Industry Group from its parent, the state aircraft maker AVIC II. That deal was put on hold after AVIC II’s government-backed merger with AVIC I, another state-controlled industrial group specializing in aviation.
Analysts also doubted the recent slowdown in the Chinese car market would provide much impetus for mergers and acquisitions.
Car sales fell 1.4 percent in September, in a second month of decline, as economic growth eased. Before August, there had only been two previous monthly sales declines in five years.
The slowdown is taking its toll on profits. FAW Car estimated that its net profit fell about 5 percent in the third quarter, after profit more than tripled in the first half.
Full-year car sales growth in China is expected to slow to 5 or 6 percent this year, according to Rao Da, secretary general of the China Passenger Car Association, a leading industry group, from above 20 percent in each of the past three years.
But China is still a relative bright spot in the global industry, especially compared with the United States, where auto sales have fallen to 15-year lows and the Big Three carmakers have posted heavy losses.
“Chinese automakers lag some of their Asian rivals, especially the Japanese, in terms of profitability,” said Wang Mingcun, an industry analyst with Tianxiang Consulting, “but the bottom line of big auto groups is pretty solid after years of fast growth.”
Rao and other analysts also forecast that China could return to sales growth rates of 10 percent to 15 percent next year, retaining its position as the fastest-growing major car market.
“Unless the market goes really bad and many small players are up to their necks in losses,” said Jane Ye, an analyst at Cazenove Asia, “few would throw themselves into the arms of bigger rivals.”
Foreign automakers have at times taken a role in spurring consolidation in China, but may play less of a role in the years ahead as they struggle with the global downturn.
Post a Comment