Chang’an May Build JV with Volkswagen

　　Chang'an Automobile has just signed a cooperation agreement with France's PSA Peugeot Citroen and now sights on Europe's largest auto company-Volkswagen. Yesterday, insiders from Chang'an told the First Financial Daily that Chang'an is in talks with Volkswagen and but there has been no result yet.

　　From the end of 2009, Chang'an Automobile carried out several expansion measures. In November 2009, Chang'an took over AVIC's automotive assets such as Changhe and Hafei. Chang'an Automobile will establish joint ventures with Mazda and PSA respectively within 2010.

　　According to the resources from Chang'an Automobile, during the past times Chang'an mainly focused on the development of independent brands and the business of joint venture was quite weak. Now they hope to walk on both legs rather than being lame.

　　Chang'an Auto's experience about joint venture.

　　Chang'an Auto and Volkswagen Commercial Vehicles are mainly discussing about business cars. They are more likely to establish a joint venture and introduce Volkswagen's business models for production and sales in China. Volkswagen now is in charge of Volkswagen Commercial Vehicles and holds the shares of Swedish commercial vehicle and bus manufacturer Scania and German business vehicle company MAN.

　　In March 2010, the President of Volkswagen and MAN Ferdinand Piech pointed out that Volkswagen, Scania and MAN would establish a tripartite strategic alliance to achieve sharing of parts and technologies.

　　Commercial vehicles produced by Chang'an Automobile are mainly Chang'an small trucks, JMC vans, buses and construction vehicles. "Our commercial vehicles have been in the low-end market. If the co-operation with Volkswagen comes true, Chang'an will expand the market," the insider said.

　　As to the sales, in the year of 2009 Chang'an Automobile sold 1.863 million units of vehicles in total, narrowly behind Dongfeng Motor and FAW Group. In the first quarter of 2010, Chang'an Automobile sold 691,000 cars, surpassing Dongfeng and FAW with considerable advantages. However, in terms of profits and overall sales income, Chang'an Automobile is lagged behind compared with Dongfeng and FAW though they have a similar size of sales.

　　According to an analysis report issued by China Association of Automobile Manufacturers, in 2009 the sales of Dongfeng Motor totaled 268.526 billion yuan with the net profit of 26.258 billion yuan. Over the same period, FAW Group's sales totaled 314.381 billion yuan with the net profit of 25.862 billon yuan. In the same year, the sales of Chang’an Automobile were only 105.42 billion yuan and the net profit was 2.383 billion yuan. The net profit was less than one tenth of Dongfeng and FAW's.

　　An insider from Chang'an Automobile admitted that currently Chang'an has attached great importance to joint venture business. Due to the shortcomings related to joint venture, Chang'an Auto's profits were left behind compared with other three giants.

　　On May 4 this year, Chang'an Automobile signed a letter of intent with PSA and planned to set up joint ventures to produce and sell PSA's passenger cars and commercial vehicles. Meanwhile, Chang'an and Mazda also plan to set up joint ventures with each side holding 50% shares. If joint venture program of Volkswagen's commercial vehicle which is under negotiation can finally succeed, Chang'an may have joint-venture relations with as many as five automakers including Chang'an Suzuki and Chang'an Ford.

　　Volkswagen will develop business of commercial vehicles in China.

　　With Shanghai Volkswagen and FAW Volkswagen, Volkswagen has become the largest foreign automaker in Chinese passenger car market. In 2009, Volkswagen sold 1.118 million units of vehicles in China, accounting for one sixth in Volkswagen's global sales. European and American auto markets suffered from downturns and Chinese automobile consumption served as a strong engine. In 2009, Chinese auto sales reached up to 13.64 million units, up 46.15% year on year and China has become the world's largest auto market.

　　Under such circumstances, Volkswagen announced that from 2010 to 2012 it would invest more than four billion euros (about 34.68 billion yuan ) to expand the plants located in Nanjing and Chengdu and realize the investment plan for new products.

　　In addition to passenger cars, Chinese commercial vehicle market is also quite strong. In 2009, China's commercial vehicle sales totaled 3.3135 million units, up 28.39% over the same period of last year. China has become the largest commercial vehicle market across the globe and in 2009 China's commercial sales were almost equal to the sales of all kinds of vehicles in Japan.

　　In contrast, European commercial vehicle manufacturer is facing a tough situation. In 2009, Volkswagen sold 354,800 light commercial vehicles across the world, down 20.7% compared with the sales of 447,200 units in 2008.

　　German MAN and Volvo truck also faced declines in varying degrees, which led to the booming development of Chinese commercial vehicle corporations. In 2009, Futian Automobile sold 602,000 units of commercial cars, replacing Daimler as the largest commercial vehicle brand in the world.

　　Yang Meihong, the Vice President of Volkswagen (China) once told reporters that Volkswagen's commercial vehicle business had not been introduced into Chinese market. According to China's domestic standard, Volkswagen actually did not have production and sales business of commercial vehicles.

　　In fact, since China has both booming passenger car market and commercial car market, global automotive manufacturers have developed strategies to enter Chinese passenger car and commercial car market. Toyota Coaster is the first joint-venture sample of foreign commercial vehicle model. In 2009, the sales of Coaster in China totaled five thousand units, holding a dominant role in China's high-end light bus market. Nissan has already implemented commercial car strategy in China and introduced light trucks, minivans and other models. Although Fiat did not have a strong hand in Chinese market, its Iveco commercial vehicle achieved sales of 87,000 units in China in the year of 2009.

　　Chen Wenkai, the President of Gasgoo.com told the First Financial Daily that foreign auto giants' actions represented a trend rather than simply a piece of news. Guo Zhenfu, the General Manager of Zhengzhou Nissan said no foreign automakers were just willing to enter the passenger car market. (Translator: Qinghua/Hanxin)

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