Auto Giants Eager to Expand Scale via M&A

　　In order to complete the restructuring project as soon as possible and support the development of automakers as well as improve the concentration rate of automobile industry, the Ministry of Industry and Information Technology has drawn up the Guidance for Mergers and Reorganizations of Automakers. If all goes well, the guidance will be issued before the end of March, according to the Cnstock.com.

　　For now, the major automobile companies have stepped up the deployment of mergers and restructuring plans. One of the focuses is how to obtain the permission of new projects. The government will no longer approve new vehicle project in the future. Therefore some automobile companies want to obtain the rights to establish new plant through mergers and acquisitions. Therefore the structures of some automakers have become targets of merger and acquisition deals. With the pace of mergers and reorganizations speeding up, the price of existing structures has soared.

　　The automotive industry has been looking forward to the issuance of the Guidance for Mergers and Reorganizations of Automakers for a quite long time. The Cnstock.com learned that according to the Restructuring and Revitalization Plan of Automobile Industry and the instructions of the State Council, the Ministry of Industry and Information Technology has drawn up the draft of the Guidance. Now the Guidance awaits the views from other related departments. If all goes well, the guidance will be issued before the end of March.

　　Although the Guidance has not been issued yet, some major automobile companies have already stepped up the deployment of mergers and restructuring plans. On one hand, the automakers are eager to obtain quick access to low-cost production bases. On the other hand, the manufacturers will be able to obtain the rights via acquiring an existing structure. Some experts believed that once the Guidance was issued, China's auto industry will enter the era of mergers and reorganizations.

　　The Guidance will be issued at the end of March

　　According to some informed sources, the government will no longer approve new vehicle projects. If an automaker plans to build new factories, it has to take over an existing manufacturer. If the automaker can meet the requirements, it will enjoy several benefits ranging from tax to credit. There are some barriers in terms of the merger and acquisition deal between two automakers in different regions such as local tax, employment problem, and social security and so on. Some relevant departments will introduce supporting policies.

　　Luo Jun, the CEO of Asian Association of Manufacturer, pointed out that during the next five and to ten years, the Chinese auto industry will have best opportunity of reconstructions. China's auto industry should solve the problem that there are too many small manufacturers. The advantageous resources should be integrated and the backward production capacity should be eliminate in order to raise the overall industrial competitiveness. China Automobile Industry Association's Vice President and Secretary General Dong Yang said that despite China has more than 130 vehicle manufacturers, the degree of industrial concentration is not high enough. According to the statistics provided by China Automobile Industry Association, there are five domestic automakers whose annual sales of 2009 totaled more than one million units, say SAIC, FAW Group, Dongfeng Motor Group, Changan Automotive Group and Beijing Automotive Holdings. The sales of top ten automakers totaled 11.8933 million units, accounting for the 87% of total auto sales. Among all the 130 automakers, the vast majority of them cannot achieve the annual sales of more than ten thousand units.

　　Zhang Jianping, the director of International Economic Institute of the National Development and Reform Commission, said that despite the concentration of China's auto industry is improving and total sales of top ten automakers exceeded ten million units, China's automakers are still far behind the world-class auto giants as to the production scale of certain company. The capacity scale of China's largest automobile manufacturer is 2.7 million units. However, the world's largest automaker Toyota Motor's annual production scale is up to more than nine million units.

　　It is reported that once the wave of merger and reorganization is set off, China is expected to cultivate two to three world-class large automakers and four to five competitive manufacturers. It is understood that SAIC, FAW Group, Dongfeng Motor Group, Changan Automobile Group will compete to become a international giant. Guangzhou Auto Group, Chery Automobile, Beijing Automotive Holdings, China's Heavy Truck, Geely Automobile intend to become competitive automakers.

　　The existing structures are attractive

　　An automotive executive revealed that "although the Guidance has not been issued officially, the price of existing structures has soared. Some automobile companies have the permissions. Since several automobile groups are eager to expand their scale, they want to establish new plants in other regions. However, since the government will not permit new project, some automakers have to achieve their goals via mergers and acquisitions. Fujian Automobile Group offers the most typical example.

　　The executives of Fujian Auto told the reporters of Shanghai Securities News that the development and final price of the acquisition deal between Guangzhou Auto, BAIC and Fujian Auto are far beyond your expectations. How much are Fujian Auto's assets? People tend to judge the final acquisition price based on existing assets. However, they have overlooked the value of the structure. Based on advantages of resources, BAIC may win the bid and take over Fujian Auto successfully and then become a large stakeholder of Southeast Automotive Group. Why the acquisition price is soaring? Some resources close to the management of BAIC revealed that the structure was attractive. According to the sources, the Beijing Municipal Government may permit only one automaker to establish new plants. BAIC and Geely are competing for the opportunity. After purchasing some assets of Saab, BAIC has announced that it will build production bases for high-class vehicles. Geely is completing the final legal work for the acquisition of Volvo and preparing for the establishment of production bases in Beijing's outskirts. In case that the permission may not be available, BAIC intends to take over another automaker in order to build new plants. Therefore Southeast Auto has become BAIC's target.

　　In addition to some auto giants, some newcomers have deployed some plans for the existing structures. For example, Qianjiang Motorcycle intends to re-enter the vehicle industry. Qianjiang Motorcycle indicated that it had signed a stock-transfer plan with Anhui Anchi Automotive Industry Co., Ltd to buy 51% share of Anchi. The premise is that Anchi's permission of producing SUV, pickup, micro truck, minivan and other models is available. After the stock transfer is completed, the original stakeholders of Anchi will be responsible for the directory and permission of minivan. Qianjiang Motorcycle will have the access to expanding its business from the motorcycle to the automotive production and sales. (Translator: Qinghua/Hanxin)

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