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Executives say consolidation is unavoidable

SHANGHAI – 200 automotive executives from around the world gathered in Shanghai on April 25-26 to discuss opportunities and challenges for OEMs and suppliers as China’s expanding automobile market faces the unavoidable future of consolidation.

The 21 senior auto-motive executives, government officials and industry professionals who spoke at the two-day 2005 President’s Forum/CBU’s 10th annual international conference, reviewed the history of M&As, the most recent developments and future market trends in China’s automobile market.

For state-owned and multi-national OEMs, many believe that joint venturing is still the dominant form of M&As in China. In his keynote address, Dongfeng Motor’s president Miao Wei, who together with Carlos Ghosn of Nissan personally tailored China’s largest joint venture deal, believed that “Joint venturing has been the trend of the time. For any joint venture to succeed,” he said, “maximizing the JV profit should be the highest principle for the partners.” Mei Wei Cheng, Ford (China)  chairman and CEO said, “In increasing likelihood, M&As in China will take the form of JVs and equity cross holdings.” By equity cross holdings, Cheng refers to the recent successful acquisition of Jiangling by Chang’an-Ford and their joint expansion into a new assembly facility in Nanjing.

Several government officials and industry analysts shared the view that M&A is not something that can be realized by the government through administrative means. Veteran automotive executive and analyst Rao Da reviewed China’s fi rst four major M&As by order of the government and concluded,”There has never been a real case of a successful M&A of any large automobile enterprises.” Gao Shangquan, Director of the China Institute of Economic Reform added, “Government tailored M&As may not work.”

Several speakers agreed that successful M&As in China will come when the market is fully open. Huang Yonghe, director of Automotive Policy Research under the China Automotive Technology and Research Center, reviewed a recent government study, which concluded that the goal of government policy should be to, “Encourage market-based competition.” Professor Zhang Huiming from Fudan University believed that China’s automobile industry should welcome the entry of private capital, “Because competition is not adequate.”

Even more so than OEMs, first-tier suppliers already feel the competition. “Supplier consolidation in China appears to be unavoidable,” said Alain Charlois, vice president of TRW Asia-Pacific. “Profi ts will be hard to come by in the future,” warned Steve Rodgers, vice president of Magna International, “get ready for OE shakeout and consolidation.”

But most OEMs are upbeat about the outcome of future M&As in China, even for new,
privately owned assemblers. Xu Gang of  Shanghai Maple, a subsidiary of the private Geely
Group, wanted his company to,”First survive and then grow.” BYD, which acquired a stateowned car assembler and a mold manufacturer, is bullish on the subject of its future because of its R&D capability. “M&As are difficult and costly operations,” said J. C. Germain, president of PSA Peugeot-Citroën China, “but potentially rewarding.”

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