BAIC Motor buys large stake in Fujian Benz; GAC Group buys 49% share of Gonow 

 

Two State-owned Chinese carmakers made major acquisitions last week that experts say will boost their profitability and expand their economic footprints. 

 

BAIC Motor Corp, based in Beijing and partially owned by Daimler AG, acquired a 35-percent stake in Fujian Benz Automotive Co on March 14, becoming the second-largest shareholder in the automaker. 

 

Fujian Motor Industry Group Co will hold onto a 15-percent equity in Fujian Benz Automotive Co, with Daimler Vans Hong Kong Ltd to have the remaining 50-percent stake. 

 

Another State-owned carmaker, GAC Group, headquartered in Guangzhou, paid 262 million yuan ($40.45 million) to acquire a 49-percent stake in GAC Gonow Auto Co to make it a wholly owned subsidiary. GAC said it plans to invest another 3.5 billion yuan in the near future. 

 

In a statement filed with the Hong Kong Stock Exchange, BAIC Motor said: "The equity transaction will enrich the company's product line, which together with our synergies of technology, talent and strategy, can assist all parties to further explore the auto market." 

 

Last week, Fujian Benz launched the V-Class, a locally produced multipurpose vehicle. 

 

Mercedes-Benz passenger cars are manufactured in Beijing and Fujian province. BAIC Motor, Daimler AG and Daimler Greater China established Beijing Benz Automotive Co in 2005. Two years later, Fujian Benz was established as a joint venture specializing in MPVs and commercial vehicles. 

 

"Through our investment in Fujian Benz, BAIC can further cooperation with the joint venture partners and draw on their respective competitive advantages, thereby building a win-win, long-term and stable cooperative relationship, while at the same time enabling complete cooperation within the Mercedes-Benz brand," according to BAIC Motor's statement. 

 

Jia Xinguang, a senior analyst with the China Automobile Dealers Association, said the Mercedes-Benz engines made in Beijing can now be installed in Fujian Benz' products to drive down costs. 

 

Beijing Benz produces luxury sedans, including the C-Class and E-Class as well as sport utility vehicles such as the GLA and GLC. It has the first Mercedes-Benz passenger car engine plant outside Germany, which it established in 2013. As a part of the global production network, it is exporting locally made engine components to Germany. 

 

"BAIC Motor has been expanding its presence across the country, but has never set foot in Fujian province. Now, it is possible to have a Beijing Benz plant in Fujian, if the province has enough appeal," said Jia. 

 

Fujian Benz produces the Viano and Vito MPVs and a large commercial vehicle called the Sprinter. Its annual sales have been tepid, with only several thousand units sold. 

 

February sales for Mercedes-Benz totaled 25,800 units, 29 percent more than the same month last year. Beijing Benz sold a record 250,188 units in 2015, nearly 72 percent more than in 2014. 

 

By melding its dealership network with the Fujian joint venture, Beijing Benz could boost sales of MPVs, Jia said. 

 

"Despite their excellent products, Fujian Benz and Fujian Motor had weak sales. They lack marketing resources, but with Beijing Benz, business could be more prosperous," he said. 

 

Hubertus Troska, the member of the Board of Management of Daimler AG responsible for Greater China, said, "We are happy to see the cooperations happen, though we are not leading the deal. 

 

"The cooperation between BAIC Motor and Fujian Motor will bring more opportunities. ... The two joint ventures are not integrating their business." 

 

GAC expands lineup  

 

GAC, on the other hand, is looking to rebuild current plants and construct new facitities to expand its lineup of MPVs and pickups with new sedan models. The carmaker said it expect a higher market share in the eastern Chinese market, according to the company's news statement. 

 

GAC Gonow has three vehicle manufacturing bases in Zhejiang province, with total annual production capacity of 460,000 units. In 2010, Zhejiang Gonow Holdings Group Co, with assets valued at 617 million yuan, held a 49-percent share of the joint venture with GAC. 

 

"BAIC's move is more strategic, while GAC is making managerial changes. Mergers and acquisitions in the auto industry are accelerating, as companies are in need of intensive management and production," said Zhang Junyi, a partner at Roland Berger Strategy Consultants. 

 

Integrating the production plants of Fujian Benz and GAC Gonow will help BAIC Motor and GAC allocate production more reasonably to elevate profitability, Zhang said. 

 

Both BAIC and GAC acquired carmakers with expertise in building MPVs. 

 

Zhang said many carmakers see great opportunities in the MPV sector. 

 

"There are great opportunities in the premium MPV segment on the Chinese mainland. The Toyota Alphard is almost the only choice in the segment, and some customers even pay extra to dealers to get it delivered sooner."