September from outside rumors - Hafei Motors and PSA Peugeot Citroen Group (hereinafter referred to as PSA) final joint venture contract deadline - there is a month, August 10 a high-level Department of Air China told reporters, "PSA CEO Philip Valan July After the visit to China, the progress of negotiations between Hafei and PSA has been accelerated."

According to the deployment, on August 18 and 19, two days, Hafei Motor's parent company AVIC Motor Company (hereinafter referred to as AVIC) had a regular board of directors and would eventually discuss the content of the joint venture agreement. As to whether or not the signing of the contract can be finalized after one month, the above-mentioned high-level department of the AVIC says “not sure”.

In addition to the important negotiations that need to be finalized, the timing of the joint venture is also due to the incomplete transfer of Hafei Automobile assets. The latest news from the Air China Department was originally assigned to two major assets of AVIC Automotive. Changhe Automobile has completed the replacement of its assets. Hafei Motors has not fully separated from the China Aviation Industry Corporation and has entered the NAC car that has been listed for less than half a year. Another important asset Dong An Power, in what ways to strip the AviChina, has not yet finalized the conclusion.

Philip Varan is in urgent need of profit

In June 2007, PSA and Hafei Motors signed a memorandum of understanding for two years. The PSA, which has always been arrogant to China's business, suddenly accelerated the negotiation process after replacing the CEO in the second half of last year. Philip Varan, who succeeded Streff's CEO, realized that there was not much time or space left for the PSA.

Against the background of the financial crisis, although the EU government scrapped subsidies program and other subsidies have stopped the sharp decline in the European auto industry, measures have greatly stimulated the demand for small cars in Europe. Together with many European manufacturers, PSA suffered a sharp decline in profits.

In particular, in the second quarter of this year, the proportion of European small car sales reached 43%, compared with only about one-third in 2007. This situation has caused widespread concern in the European industry, because no matter how tight the sales of small cars, European small car manufacturers including PSA, Fiat, etc. can not get too much profit.

PSA’s performance report for the first half of the year shows that the group’s net loss was 962 million euros, compared with a profit of 733 million euros in the same period last year. PSA also expects that sales in the European automotive market will also fall by 7% in the second half of the year and will drop by 12% in the whole year, and will not begin to recover until the end of 2010. Due to the drag on the European market, PSA's global sales volume in the first half of this year was only 1.587 million, which was a 14% decrease from the same period of last year.

At present, the European market accounts for two-thirds of PSA's total revenue, and its excessive reliance on the European market has made the PSA Board aware that it is necessary to open up new markets represented by China.

After he took office in China, PSA President Valan who had just been in office said publicly that he “will establish a second joint venture in China” and made three priority development strategies for the future of PSA—globalization, technology leadership and industry benchmark. The “globalization” refers directly to the soft underbelly of PSA. PSA has long been in a loss-making state in the two major automotive markets, the United States and China, which play a pivotal role in the world.

PSA currently has a clear strategy for accelerating the promotion of the Chinese market. As the object of negotiation, the purpose of AVIC is also clear: technology and brand. “Sustainable technical support and branding are urgently needed by the new AVIC.” A related person from AVIC told the reporter.

According to the contents of AVIC Automotive and PSA Agreement, the new CNAC and PSA will establish equity-equity joint ventures to initially use Hafei's 100,000 idle annual capacity in Shenzhen to produce commercial vehicles under 10 seats.

"So far, the cooperation with PSA is at the level of Hafei." A high-level department of the China Aviation Department specifically told reporters that the future cooperation may be extended to the entire AVIC vehicle. "The new CNAC and PSA will be in joint venture models, production bases, etc. There is a lot of space and possibility for cooperation."

Waiting for a new oligopoly

Hafei Automobile and PSA entered a countdown to a joint venture, and the reorganization of Hafei Automobile's superior units, AVIC Automotive and Changan Automobile, is also in full swing. The above-mentioned high-level Department of Air China clearly told reporters that “at the moment the two sides have indeed made contact, but it has not yet risen to the board stage.”

According to sources from Chang'an, the current reorganization plan for both parties is that AVIC will integrate its Hafei and Changhe into Changan Automobile as a whole, and CNAC will retain Dongan Power.

Not long ago, Xu Liuping identified the year of 2009 as the "Changan Automobile Reorganization Year," and at the internal meeting he proposed the three principles for the reorganization of Changan Automobile, namely, a single shareholding structure, adequate flow and utilization of resources, and Changan-led.

According to sources from Chang'an, Chang'an is positive about the acquisition of Hafei and Changhe. The two parties have already been in contact with each other for many times. The current merger and acquisition plan is to integrate Hafei Automobile and Changhe Automobile, both of which are under new CNAC, into Changan Automobile.

Judging from the domestic micro-car industry situation, Hafei Motor currently has a production capacity of approximately 400,000 vehicles and 450,000 engines. The current production capacity of Changhe Automobile is 300,000 vehicles and 150,000 engines. After Changan integrates Hafei and Changhe, the mini-vehicle scale will surge by 85%, directly confronting SAIC-GM-Wuling and forming a “double oligopoly”.

This situation is very conducive to the concentration and development of the entire industry. In the first half of the year, the total sales volume of Changan and SAIC-GM-Wuling’s micro-customers basically accounted for nearly 70% of the domestic micro-carrier market. Therefore, as early as the end of last year, the Ministry of Industry and Information Technology had intended to prompt Changan to restructure the new AVIC automotive business.

"Changes in Changan and the new AVIC vehicle, coupled with the country's background in encouraging the merger and reorganization of the automotive industry, further strengthened the possibility of cooperation between the two." Cao He, deputy general manager of the National Securities Research & Development Center, believes that the cooperation between Changan and the new AVIC is available. Two important prerequisites are: First, the main business of the new China National Aviation Corporation is to build large-scale aircraft, and the auto business that insists on not giving up will need to be accountable if it is not successful. In addition, Changan, which is promoted to the “Big Four,” urgently needs to expand itself, and the micro-vehicle industry is only large. Scale can guarantee profits.

After successful acquisition of Hafei and Changhe, Chang'an Automobile will become the first case of the central automobile industry in China to cross regional and cross-system restructuring in recent years. In terms of total sales, Changan Automobile will at least surpass Dongfeng Motor, which is ranked third.

Mentioned in AVIC, Chang'an is very sensitive

For the cooperation between Changan and AVIC, Chang'an has already been calibered within the group. A high-level chief of the Chang’an Group clearly told reporters that “in the absence of a formal signing agreement with the new China Airlines, the outsiders will always avoid talking.”

There are two reasons for this. First, there is concern that once the Hafei and Changhe are unsuccessful, it will have an impact on the Changan automobile brand; in addition, Changan does not want their attitude to be inconsistent with the competent authorities.

Two years ago, Xu Liuping, president of Chang'an Group, publicly denied the possibility of acquiring Changhe. The reason was that the two were not complementary. But now that things are changing, Chang'an Automobile has been promoted to the “Big Four.” The state encourages “four big and four small” mergers and reorganizations across the country. The bottleneck for production capacity and the strategic layout have spread throughout the country. Expansion has become a must for the development of Changan Automobile.

On the other hand, the new CNAC, which merged the original strength of Yihanghang and Erhang, was unprecedentedly strong. It integrated internal automobile resources, established an automobile subsidiary to co-ordinate the automobile business, and proposed the goal of making the automobile industry bigger and stronger, integrating Hafei with Changhe. Forming a joint force also lays a good foundation for seeking external cooperation.

Cao He believes that the positive relationship between the Chang’an auto’s needs and the needs of the new CNAC, and the success of Hafei’s and Changhe’s overall integration into Chang’an will depend on two important factors: first, the driving force of the competent authorities, and the second For the new CNAC's own wishes, especially the extent to which the new CNAC management can make sacrifices.

At present within AVIC Automotive, there is still the voice of not giving up on the auto business, and the “unwillingness to be integrated” and the “integration is a throwback” mood.

"Even if it is integrated by Changan, the new AVIC will not completely abandon the automotive business. The two sides are likely to take the form of joint ventures." Some industry analysts predict that negotiations between Changan and the new CNAC will not be as urgent as negotiating with other local auto companies. It will go through a difficult and lengthy process.

AVIC, Chang'an and PSA Triangle Relations

"Any domestic company that is not in the new CNAC and Dongfeng talks about cooperation will not affect the cooperation with PSA. On the contrary, the two cooperation projects can promote each other." Insiders of the Department of Aviation told reporters.

PSA will not be rejected, and the new CNAC will cooperate with Changan Automobile. Analysts believe that once the Changan Automobile and the new Sino-Aviation joint venture, PSA can not only increase the actual discourse power in the joint venture company with Hafei, but also indirectly achieve a joint venture with Changan, the fourth-largest auto group in the country.

As Changan, in urgent need of expansion, there is no reason to exclude the joint venture between New China Airlines and PSA. Objectively speaking, the development of Changan Ford, Changan Mazda and Changan Suzuki, which are Changan-owned joint ventures, is yet to be further improved. In the highly competitive Chinese market, the “vulnerability” of joint venture projects is also an urgent issue for Chang’an.

In fact, with the PSA product line, how to achieve a two-handed situation in China is an unknown. AVIC Motor understands that Hafei and PSA have certain risks.

Moreover, even if PSA can provide continuous technology for the development of Hafei Motors, it will not be able to help AVIC Automotive solve the integration of its automotive business, in particular to help Hafei and Changhe, make the superior microcar business bigger and stronger. To solve future competition and survival issues, AVIC Automotive can only rely on domestic restructuring.
View related topics: China's auto industry recommence mergers and acquisitions wave


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