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Multinationals demand more shares in JVs

Suzuki Motor will increase its equity share in its joint venture with Chang’an Auto Group to 50 from 49 percent, or the policy upper limit, according to local media reports.

The new Chang’an-Suzuki Automobile Co., Ltd. will incorporate Changhe-Suzuki, now under Chang’an Auto Group, either as a subsidiary or the third plant of Chang’an-Suziki, according to a person close to the matter.

Suzuki reportedly promised not to seek for a second partner in China in return for Chang’an’s agreement to increase its equity shares by 1 percent.

Suzuki has demanded for the increase ever since the establishment of the JV but never succeeded. As a result, the Japanese automaker stopped introducing new models into China during the past two years. And Chang’an-Suzuki missed out during the prosperous and booming years of China’s auto market in 2009 and 2010.

Suzuki is not the only multinational automaker that has been demanding equity share increases in China.

Audi gets 9 percent from FAW

Audi, a subsidiary of Volkswagen Group, has only a 10 percent equity share in FAW-Volkswagen, a 60:30:10 JV split by FAW, Volkswagen and Audi. With Audi China taking up one-fifth of the brand’s global sales last year, or 220,000 units valued at €220 million, the German automaker has every reason to demand for more equity shares in the JV. With government approval, FAW will sell 9 percent to Audi so that the new equity share of FAW-Volkswagen will be 51:30:19 among the three partners.

“In considering Audi’s increasingly important position in Volkswagen’s next five-year planning, it is the best solution for FAW to sell 9 percent shares to Audi in exchange for more product resources,” said an auto analyst.

FAW-Volkswagen will sell 1.65 million vehicles by 2015 with Audi contributing 700,000 units, or 40 percent of the total up from the current 25, according to President An Tiecheng.

In return for the added shares to Audi, which means billions of yuan in annual sales, Volkswagen agrees to compromise in equity shares of its engine and transmission subsidiaries in favor of FAW Group. The newly launched EA211 engine plant in Chengdu, for example, will become a subsidiary of FAW-Volkswagen instead of Volkswagen Group.

GM to buy back 1 percent of Shanghai-GM

General Motors expects to buy back 1 percent share of Shanghai-GM and bring the stake in its China joint venture back to 50 percent, CEO Daniel Akerson was quoted as saying on August 4. He expects the deal would close after SAIC completes a capital restructuring.

GM sold 1 percent of its stake to Chinese partner SAIC in 2010 for about $85 million in cash when it was preparing for a new IPO after its 2009 bankruptcy.

“GM may find it difficult to buy back its stake because it is not in the interest of SAIC or the Chinese government to sell,” commented Zhang Xin, an analyst with Guotai Jun’an Securities in Beijing.

“The Chinese government has been encouraging automakers to be independent and they’re unlikely to approve GM’s repurchase unless GM can offer some attractive terms in exchange,” added Zhang.

Ford close to increasing stake in CFMA to 50 percent

Ford is close to increasing the stake in its Chinese joint venture, Chang’an-Ford-Mazda Automobile Co. (CFMA) to 50 percent, said Joe Hinrichs, president of Ford Asia Pacific and Africa and chairman & CEO of Ford Motor (China), on August 10.

Chang’an Auto Group currently has 50 percent of the stake, while Ford and Mazda hold 35 and 15 percent respectively. With Mazda leaving the JV, Ford will likely be able to increase its equity share by another 15 percent.

“Equity shares of quite a few vehicle joint ventures were not equally divided due to historical reasons,” said senior analyst Jones Zhong to CBU/CAR in a telephone interview. “However, as the China market becomes increasingly important and profitable, many foreign partners are asking for more equity shares,” added Zhong. “The Chinese government will not intervene as long as the Chinese partners keep stakes no less than 50 percent. The Chinese partners, on the other hand, usually can negotiate some favorable conditions such as getting better models and technologies from foreign partners.”

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