Chang’an Auto to buy joint ven­ture stake from par­ent

Fore­cast about prof­itabil­ity dim in short term

China Daily (Hong Kong) - - MOTORING - By XU XIAO xux­iao@chi­nadaily.com.cn

Chang’an Au­to­mo­bile Co, a Shen­zhen- listed com­pany un­der the Chang’an Au­to­mo­bile Group, will be­come the new part­ner of Chang’an PSA in the fourth quar­ter this year, Jiang Aiqun, a spokesman for the com­pany, told re­porters re­cently.

Pre­vi­ously, the Sino-French joint ven­ture Chang’an PSA was a 50-50 ven­ture be­tween Chang’an Au­to­mo­bile Group and PSA Peu­geot Citroen. Ac­cord­ing to a state­ment re­leased by Chang’an Au­to­mo­bile Co on Dec 27 last year, the com­pany will pur­chase the 50 per­cent stake in the joint ven­ture cur­rently held by the par­ent group at a price of more than 2 bil­lion yuan.

For Chang’an Au­to­mo­bile Co, which only had a profit of 1.4 bil­lion yuan in 2012, such an ex­pen­sive pur­chase is a huge risk, an­a­lysts say.

The com­pany pre­dicts that the joint ven­ture will start to be prof­itable by 2015.

Ac­cord­ing to the par­ent group, this is eas­ier said than done.

The group pre­dicts that Chang’an PSA’s deficit will reach 125 mil­lion yuan this year, and the deficit is likely to hit 175 mil­lion yuan in 2014.

Chang’an PSA was es­tab­lished in Novem­ber 2011 with a reg­is­tered cap­i­tal of 4 bil­lion yuan.

At first, the joint ven­ture just sold im­ported DS mod­els — Citroen’s high-end port­fo­lio — and con­ducted re­search and de­vel­op­ment for lo­cal pro­duc­tion.

The first lo­cally made DS5 model will be­gin pro­duc­tion in this Septem­ber.

Al­though the DS se­ries has a high pro­file in its home coun­try France and was the fore­most sedan choice of sev­eral French lead­ers, in­clud­ing Charles de Gaulle and Fran­cois Hol­lande, its prospects in China are still du­bi­ous, an­a­lysts say.

Cur­rently, the DS has 19 deal­ers and nine show rooms in China. How­ever, the brand has only sold 20 of the im­ported DS mod­els monthly on aver­age since it en­tered the coun­try in the mid­dle of 2012, ac­cord­ing to the China Busi­ness news­pa­per.

In­dus­try in­sid­ers say the main rea­son for the slug­gish sales of DS se­ries in China is mainly that French com­pa­nies still lack enough un­der­stand­ing of Chi­nese cul­ture and the driv­ing habits of lo­cal cus­tomers.

Fur­ther­more, in­sid­ers also voiced con­cerns that the merger will threaten Chang’an Au­to­mo­bile Co’s prospects in the next few years, es­pe­cially by com­pet­ing with sedans re­leased un­der its wholly owned name­plate.

In the past, the Chang’an brand mostly built mini­vans and only en­tered the sedan seg­ment in 2006.

Ac­cord­ing to the com­pany’s strat­egy, the Chang’an brand will de­velop a com­plete sedan lineup that in­cludes 15 prod­ucts in the next few years.

To reach that goal, the com­pany has in­vested a lot in the re­search and de­vel­op­ment of its self- de­vel­oped prod­ucts. In 2011, the in­vest­ment was more than 1.61 bil­lion yuan and in 2012, 1.69 bil­lon yuan.

“If the wholly owned brand wants to speed up de­vel­op­ment, they need a lot of cap­i­tal,” said Jia Xin­guang, an in­de­pen­dent auto an­a­lyst in Bei­jing.

“Ob­vi­ously, the merger will harm Chang’an Au­to­mo­bile’s prof­itabil­ity at the mo­ment, and it will cast a cloud on the prospects of its self-de­vel­oped name­plate.”

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