While most of China’s top automakers are relying on partnerships with major global brands to help get them through a domestic downturn expected to last for the next 1-2 years, Geely (HKEx: 175) is taking an interesting approach by turning to the struggling Volvo, with plans for a new joint venture. (English article) First off, I have to say that this is the first time I’ve heard of a company forming a joint venture with itself, since Volvo has been 100 percent owned by Geely since the Chinese automaker’s landmark purchase of the Swedish company 2 years ago. But perhaps more importantly, Volvo is a struggling, second-tier name that lacks the resources to be an effective partner for Geely, which itself is trying to bolster its China market position even as it struggles under a mountain of debt that it took on to buy the Swedish car maker. Let’s look quickly at this newly announced deal, which will see Geely and Volvo team up to develop a new brand for the China market, following a similar strategy by General Motors (NYSE: GM), which has launched a new brand, Baojun, with Chinese partner SAIC (600104), specifically for the China market. The big difference in this case is that Geely itself is already a well known Chinese brand, and I’m not sure why the company — whose resources are already quite stretched — is choosing to develop a new brand instead of focusing on reviving both its own Geely name as well as Volvo’s. Geely previously announced plans to set up 2 major new Volvo car manufacturing plants in China in a bid to boost its sales, and some of the reports are saying the establishment of this new joint venture may be partly designed to satisfy regulatory requirements in order to get the 2 new factories approved. Still, the plan to introduce a new brand, and also plans to develop green cars at the joint venture, seem like a total waste of resources for both Geely and Volvo, and will only lead to more operational and financial distractions just when the company should be focusing on its core Volvo and Geely brands. In fact, this latest plan is just the latest sign of a company in disarray following the Volvo purchase, which sadly is becoming normal for Chinese firms that buy struggling, major global assets at bargain prices, only to discover it’s much easier to buy such assets than to repair them. That said, this development of a new brand looks completely misguided, and is just the latest step of Geely’s downward spiral that could seriously damage the company.
Bottom line: Geely’s plans to form a joint venture with its Volvo arm is the latest sign of disarray for the former high-flyer, boding poorly for its future over the next 2-3 years.
Related postings 相关文章:
◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点
◙ Cars: US, Germany Clobber Japan, Domestic Rivals 美德汽车在华完胜日本和中国车商
China has just published its first monthly auto sales for 2012 and they aren’t pretty, boding poorly for the sputtering market in the Year of the Dragon. Of course, the figures for the month of January come with several major footnotes, most importantly the fact that sales were weak in 2012 as the Lunar New Year holiday fell during the month this year, whereas it fell in February for 2011. Still, the 16.5 percent decline in sales for the month marked the biggest decline in more than a decade, a sharp reversal for a market that was used to gains in the healthy double-digit percentage range for most of 2009 and 2010, and was still seeing healthy growth for most of 2011. (
A couple of reports in the China Daily this morning are saying that 2 iconic Chinese car nameplates, the Shanghai and Hongqi brands, could both be poised for comebacks soon in what looks like an interesting new prospect for the domestic auto market. If they go ahead with the plans, the reintroductions of Shanghai brand autos by SAIC (Shanghai: 600104), and Hongqi cars by FAW Auto could actually stand a reasonable chance of success, banking on nostalgia among Chinese consumers and both companies’ growing expertise at making dependable cars with solid demand after years of working with foreign partners. According to the China Daily, SAIC listed a Shanghai brand model in a recent catalog, and a company insider confirmed plans to revive the brand, which ceased production in 1991 as China’s largest automaker focused its energies on its 2 main joint ventures, one with GM (NYSE: GM) and the other with Volkswagen (Frankfurt: VOWG). (
The rapid slowdown in China’s auto sales has spread to the higher-end of the market, boding poorly for foreign names like Volkswagen’s (Frankfurt: VOWG) Audi brand and BMW (Frankfurt: BMW), which have invested heavily in the market on a bet that pricier cars were less vulnerable to industry downturns than more mainstream models. After two turbo-charged years of growth that saw Chinese car sales jump on strong buying incentives from Beijing, growth in the market has suddenly disappeared as incentives ended and the central government takes other tightening steps to cool the overheated economy. Makers of high-end products, such as luxury bags, homes and cars, love to say how their products are more immune to economic downturns than mainstream goods, even though the reality is that the suffering is usually just slightly delayed for these higher-end products. But even luxury cars appear to already be suffering in the current car slowdown, with foreign media reporting that sellers of premium brands are now offering discounts of 16-20 percent to maintain sales. Those discounts look similar to ones being offered by more mainstream brands such as VW and SAIC (Shanghai: 600104), as companies lower prices to try and offset cooling demand. I previously said that Chinese car makers with major foreign partners are best positioned to survive the current downturn, which is bad news for names like Chery and BYD (HKEx: 1211; Shenzhen: 002594), which lack such partners that have the resources to weather such slowdowns. Chery has received a setback on that front, with Japanese media reporting the company’s plan to produce Subaru-branded vehicles in a new joint venture with Fuji Heavy Industries (Tokyo: 7270) has been rejected by China’s state planner because the company’s major shareholder, Toyota (Tokyo: 7203), already has 2 joint ventures in China, the maximum allowed under Chinese law. (
There’s been a flurry of news on the electric vehicle (EV) front these last 2 days, as China enlists US heavyweights General Motors (NYSE: GM) and General Electric (NYSE: GE) to try and jumpstart the country’s sputtering drive to environmentally friendly cars. But despite the hype, the two latest initiatives look largely symbolic to me, and it’s hard to tell if either will have much impact. One deal will see GM and Chinese partner SAIC (Shanghai: 600104) step up their EV development, with GM making vague promises to transfer more of its cutting-edge EV technology to China as it prepares to import its state-of-the-art Chevy Volt on a trial basis. (
The central government was sending mixed signals about its future plans for electric vehicles (EVs) at an auto event over the weekend, on the one hand tightening current incentives for EV sales but at the same time saying it is studying more measures to boost the struggling program. What this tells me is that China’s ambitious program to put 1 million EVs on the road by 2015 is in a state of disarray, with few such vehicles on the road today despite lots of government talk. Let’s review the latest developments, which saw one Finance Ministry official at the event in Tianjin saying fuel efficiency standards were being raised for EVs to qualify for a government subsidy of 3,000 yuan per vehicle, meaning less cars will now qualify in the program. (
Leading Chinese car maker SAIC Motor (Shanghai: 600104) has just posted its latest results that look quite impressive, underscoring that having strong foreign partners is critical in the highly competitive auto industry as it heads into a major slowdown. SAIC said its profit in the first six months of the year cruised ahead at a rapid 46 percent clip to 8.58 billion yuan, or about $1.3 billion — not bad for a market where growth has slowed dramatically this year and is only expected to reach 5-10 percent following the end of government incentives to boost sales during the global financial crisis. (
The first quiet signs have emerged that a price war is building in China’s chilly auto market, with Ford (NYSE: F) disclosing that it’s coming under pricing pressure as sales slow under economic cooling measures from Beijing. (
