Chang’an Has Smoother Internal Relations

　　According to media reports, Chang'an and PSA signed agreement on May 4. Chang'an Automobile will release the announcement through its listed corporation.

　　In mid-November last year, Chang'an Automobile Group acquired Hafei, Changhe and Dongan which once belonged to Aviation Industry Corporation of China. Since then there has been speculation that the negotiation about joint venture between PSA and Hafei has shifted to the discussion between PSA and Chang'an. But Chang'an has denied the information. Some media even asserted: “the direction has been discerned from all the aspects. Even if the both sides decide to conduct cooperation, they wouldn't choose to set up a joint venture. They may take the form of technical cooperation which is limited to the field of small engine." Once the news was announced, some media commented that "the negotiation was a quick fix".

　　Since the year of 2004 PSA and Hafei has been engaged in negotiations lasting for five years. In June 2007 both sides signed the cooperation agreement. They intended to jointly set up a joint venture with each side having 50% stake. Relying on Hafei's production in Shenzhen, the joint venture would be used to manufacture and sell high-end light commercial vehicles with no more than ten seats. Later, dissatisfied with PSA's faithless decision, Dongfeng Automobile was ready to take over Hafei. However, since the Aviation Industry Corporation of China changed the mind, Dongfeng finally achieved nothing regarding the acquisition of Hafei Auto.

　　Hafei began building its Shenzhen base from September 2009 with the cost of two billion yuan. The base covers an area of 604,000 square meters and the designed annual capacity totaled 100,000 units. However, since June 15 of 2007, the production has been completely discontinued. The joint program between Chang'an and PSA is similar to that conducted by PSA and Hafei. According to the program designed by PSA and Hafei, Shenzhen production base will be used as the base for the joint venture. Therefore both sides would not have to build a new base. Meanwhile, they can address the overcapacity problems existing in the Shenzhen factory.

　　As to the cooperative program between Chang'an and PSA, there are some new factors. First of all, the joint venture will first manufacture the small vehicles independently developed by Chang'an Automobile and use Chang'an brand. After taking over Hafei, Chang'an has begun integrating production and capacity and arranged the models which will be produced by the plant in Shenzhen. Now PSA is involved. Apart from the originally planned commercial projects，some high-end models such as Peugeot 607 may be introduced.

　　In 2009, PSA Group's global sales reached up to 3,188,000 units, down 4% over the previous year when the sales totaled 3,330,000 units. PSA suffered from a loss of 1.161 billion euros which was twice higher than that of 2008. The group was faced with the biggest loss in the past two decades. In China, PSA's business development was not satisfactory. Therefore now PSA is eager to find new partners in China and promote its market share in such a booming market.

　　Another major move carried out by Chang'an Automobile was to integrate Suzuki's system. Chang'an Suzuki only achieved a profit of 20 million yuan and the net profit margin was only 0.9%. It is an urgent task for Chang'an to promote the integration of Chang'an Suzuki and Chang'an Suzuki regarding the joint venture business. The integration of Suzuki system may help Changhe find a right direction of development.

　　In addition, Chang'an Mazda will be withdrawn from the system of Chang'an Ford. That program is being carried out. At the end of 2008, Yamauchi became the President of Mazda. During the Beijing Auto Show he said, "We have already made application to the government and we are waiting for the approval." Another executive of Mazda revealed: "As to the plan and construction of the plant in Nanjing, Mazda was actually playing a leading role. We transplanted the product system from Mazda to Nanjing's plant. “At present the equity relationship between Chang'an Ford and Mazda is quite complex. Mazda has another partnership with FAW, which makes the integration work in China extremely difficult. For several times Mazda's efforts failed. It is a necessary step to establish a separate set of Chang'an Mazda for the integration of resources in China.

　　After several major actions related to integration, Chang'an Group has smoother internal relations. The next step is to accelerate and work for the goal of becoming the top one domestic automaker. (Translator: Qinghua/Hanxin)

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