Year in review: China's ascent to top of global auto market

(China Daily)
Updated: 2010-04-24 06:52

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Geely's acquisition

China's only privately owned carmaker Zhejiang Geely Holding Group sealed a landmark deal on March 28 to buy ailing Swedish luxury car brand Volvo from Ford Motor Co for $1.8 billion.

The move is China's biggest overseas auto acquisition and also the boldest by a homegrown carmaker. The cost is much lower than $6.5 billion Ford paid for Volvo in 1999.

Geely Chairman Li Shufu told a press conference in Beijing that the company will inject $900 million in operating capital into Volvo. The deal is subject to government approval.

"After the takeover, Geely and Volvo are brothers instead of a father and a son. Geely will not produce Volvo cars. Volvo will not make Geely cars," Li said, adding that Volvo would keep its unique characteristics.

His remarks were apparently made to dispel concerns that Volvo will lose its prestige as a premium car brand after acquisition by low-cost car maker Geely.

The legendary boss attributed Volvo's hardship largely to its small production scale and high research and development expenses, saying Volvo should try to raise production and sales to cut per-unit costs.

After the merger, Geely will reportedly build a 300,000-unit assembly plant in Beijing for Volvo.

Last year, Volvo sold 330,000 vehicles globally, its lowest figure over the past decade. Geely's 2009 sales surged by 48 percent year-on-year to 330,000 cars. It has an ambitious plan to lift annual sales to 2 million units by 2015.

Mergers, acquisitions

China's fragmented auto industry witnessed a new wave of mergers and acquisitions (M&As) with Chang'an Motor Corp, one of the country's top-tier auto groups, taking the lead.

In November last year, Chang'an agreed to buy the major auto businesses of one of the nation's leading aircraft manufacturers, Aviation Industry Corp of China (AVIC). The deal was the biggest auto M&A in recent years.

AVIC's two mini bus makers - Hafei and Changhe - and the engine unit Dong'an were merged into Chang'an. The assets of Changhe's joint venture with Suzuki and Dong'an's engine tie-up with Mitsubishi were also integrated into Chang'an. In return, AVIC took a 23 percent stake of Chang'an.

In May last year, Guangzhou Automobile Group Corp, the partner of Honda and Toyota, acquired a 29 percent stake in Shanghai-listed SUV producer Changfeng Motor Co Ltd for 1 billion yuan.

In February this year, Geely took over Zhejiang Zhongyu Holding Group, an obscure Chinese partner of Daimler AG. No financial details were revealed for the deal. Zhongyu is a special-purpose vehicle producer.

The central government is planning new measures to boost M&As and consolidations in the auto industry to improve global competitiveness.

Luxury carmakers

The world's major luxury carmakers are racing to ramp up production capacity in China to cash in on the fast-growing luxury vehicle market.

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In November last year, BMW announced a plan together with its joint venture partner Brilliance China to increase its annual production capacity in China to 300,000 cars in the long term.

The two partners now run a joint venture in northeastern city of Shenyang which has an existing plant with a capacity of 41,000 units a year. The figure will grow to 75,000 units this year.

A second plant with an initial capacity of 25,000 vehicles is under construction in the city and scheduled to come on line in 2012. The new facility's capacity will be raised to 100,000 units in 2016 or 2017.

Last September current premium car segment leader Audi opened a new 100,000-unit plant in Changchun, doubling its total annual production capacity in China to 200,000 cars.

German luxury carmaker Mercedes-Benz plans to raise its capacity in Beijing to 80,000-100,000 units a year by 2012 from 25,000 units at present.

The luxury car market in China still has great potential to grow, powered by the country's steady economic growth and rising middle class. Sales of luxury cars in China are predicted to double to more than 700,000 units annually over the next five years.