By Ouyang Changzheng
Chinese auto leader Shanghai Automotive Industry Corp. has agreed to buy the vehicle and components divisions of Yuejin Auto Group, parent of Nanjing Automobile (Group) Co., in a deal valued at 2.095 billion yuan.
SAIC and Yuejin will form a joint venture called Dong Hua Co., which will take over the remaining assets of Nanjing Auto including component, service and trade assets, according to an agreement announced December 26.
In return, SAIC will transfer 320 million shares of its SAIC Motor Corp. (600104 SH), or nearly 5 percent, to Yuejin. Yuejin will control 25 percent of Dong Hua’s shares.
The deal reflects an ongoing reshuffling in the increasingly competitive domestic auto market, and caps negotiations that began when the two companies signed a cooperation agreement July 27.
SAIC is one of China’s largest automakers, with operational revenues reaching 76.95 billion yuan in the third quarter 2007. The company manufactures cars, other vehicles and major automotive components. It’s also involved in the financial investment and service industries.
Nanjing Auto’s production line is less competitive but more diverse than SAIC’s. Its products include mid-range Nanjing MG car, which was developed based on the Rover production line bought from a now-defunct British manufacturer. It also has a joint venture products business with Italy’s Fiat, and produces the NAC Soyat sport utility vehicle, a multi-purpose vehicle, and the Yuejin light truck.
Several years ago, SAIC and Nanjing went head-to-head in competing for Rover’s assets. Eventually, SAIC acquired the Rover 25, 75 and K-series gasoline engines along with the L-series diesel engines in 2004, while Nanjing bought the Rover production line and brand.
Now, the former rivals may share resources including funds, research and development, marketing, manufacturing and procurement.
Among its shortcomings, SAIC has been lagging in the commercial vehicle sector. In the third quarter 2007, the company held only about 2 percent of the domestic market, while First Automobile Works controlled 11 percent. Joining hands with Nanjing may help SAIC get back in the game.
1 yuan = 13 U.S. cents