The auto industry must consolidate: That was the message issued by Beijing, concerned that a fragmented auto industry would stand in the way of its own healthy development. The year was 1994.
When the government announced earlier this year plans to reorganize the industry into four big companies – Shanghai Automotive Industry Corp (SAIC), FAW, Dongfeng and Chang’an – and four other regional players, the failure of previous consolidation efforts was not discussed.
“In the last 15 years, we have seen the industry decentralize, not centralize,” said John Zeng, senior market analyst of Asian automotive research for IHS Global Insight in Shanghai.
A fast-growing market has meant that even small automakers have been able to survive. While a firm making 20-30,000 vehicles a year might have trouble staying in business in other countries, Chinese demand has been strong enough to allow most domestic manufacturers to worry little about their finances.
What’s more, local and regional governments have proven fiercely protective of local companies, keeping them in business and protecting them from takeovers by automakers from other regions.
The merger of SAIC and Nanjing Auto, agreed upon in late December 2007, was one of the few successful major consolidation efforts, and Zeng says it was only possible because of direct intervention by the National Development and Reform Commission, and lengthy negotiations between the Shanghai and Jiangsu regional governments.
“In other cases, I don’t see it happening,” he said.
Others see consolidation differently. Gerwin Ho, head of regional autos coverage at Citi in Hong Kong, says that the very act of announcing the four major auto makers will have a positive effect on their business.
“For them to name the names, it’s quite a big step. And for the companies that are named, that’s going to be a very tangible advantage for them … If I’m a foreign company doing business in China, I’m naturally going to gravitate toward those head-chosen winners,” Ho said.
Zeng downplays the importance of earmarking specific companies. In addition to complex ownership structures of domestic auto firms making consolidation difficult, the policy has also met bureaucratic resistance: Officials from the Ministry of Industry and Information Technology have said that consolidation should be voluntary, not forced.
You must log in to post a comment.