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SAIC Motor new chairman responds to shareholder concer

SAIC Motor (600104) shareholders questioned the company’s new chairman and president on June 19 about when SAIC’s independent brands would add to instead of dragging down the value of their stocks, according to a signed article published in Zhongguo Qingnian Bao or China Youth Daily.

The annual shareholders’ meeting was held to celebrate the company’s progress and announce dividends for shareholders, according to the article. SAIC Motor sales in 2013 were up 13.7 percent to a total of 5.11 million, leading China’s 2nd largest automaker Dongfeng Motor Corp. by 1.57 million units.

SAIC Motor sales revenue reached ¥565.8 billion ($93 billion), up 17.6 percent over 2012. Total net profit for shareholders was up close to 20 percent, to a total of ¥24.8 billion. Rolling in profit, SAIC Motor has been generous with its dividends. To the envy of many other companies, SAIC Motor paid out ¥6 for every 10 shares in 2012 and has doubled the dividend payment to ¥12 for every 10 shares in 2013, totaling ¥13.2 billion.

But the celebratory atmosphere became tense, the article said, when a number of shareholders raised sharp questions to Chen Hong, the new chairman, about the performance of the state-owned and public-listed automaker’s independent brands.

One shareholder was quoted as saying: “SAIC Motor has three children. The two daughters are married to the rich, making lots of money. But the son has not lived up to expectations and knows only how to spend money.”

The “two daughters” refer to Shanghai-Volkswagen and Shanghai-GM. And the “disappointing son” refers to SAIC Passenger Vehicle division that makes the Roewe and MG brands.

It has been seven years since SAIC started making and selling independent car brands. Compared to many state-owned companies in China, SAIC has invested heavily in R&D and in new energy vehicles. It owns an independent EV platform and possesses core technologies.

But investors are less concerned about what SAIC PV has done so far, according to the article. They are concerned about the sharp contrast between the overly excellent performance of the two JV and the unprofitable performance of the independent brands.

Some investors believe that the SAIC Motor stock has been extremely undervalued. This is because of the unprofitable performance of its independent brands after seven years of operation. SAIC Motor is a good company, they say, but it is far from a great one.

Chen Hong admits to the small scale in output and sales of the Roewe brand after seven years. “None of the Roewe models, such as the 550, 750 and 950, has reached economies of scale, which explains why we have not been profitable,” Chen was quoted as saying.

Even the Roewe 350, SAIC’s bestselling compact sedan priced at ¥80,000-¥140,000 faces direct competition from multinational brands that have been penetrating into the lower-end car segment, Chen said.

“We cannot deny the fact that the branding image of local independent brands is still weak,” Chen said. “But as far as SAIC is concerned, we started by making mid- to high-level cars and should have more room to maneuver competing with foreign brands compared to those that are making low-end cars. Branding will determine the future of independent brands and will be an important area for SAIC to focus in order to increase sales.”

The article believes that SAIC Motor now faces a different challenge under Chen Hong and his deputy, company president Chen Zhixin. It is no longer a challenge of how to run its joint ventures faced by former chairman Hu Maoyuan. It is a challenge of how to develop its core technology based on forward engineering in the development of its independent vehicles and building up its brand equity.

“One of our priorities is to attract and retain talents in order to be able to encourage innovation and creativity at the company,” Chen said. “We are initiating an incentive fund to tie the company performance more closely with management and employee pay and benefits.”

SAIC will become the first Chinese company to set up a venture capital company at Silicon Valley in California, according to Chen. This will help SAIC to utilize venture capital to help introduce the world’s most advanced technologies and business models in the future.

“SAIC independent brands only started in 2007. We cannot compare them with international brands made by century-old companies. It takes time for a human being to grow up. So I would like our shareholders to be more patient,” Chen said.

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