CHENGDU, Sichuan – China National Heavy-Duty Truck Group Corp. (Sinotruk) and Chengdu Wangpai Motor Group Co., Ltd. (Wangpai) signed an agreement on August 23 to set up a new commercial vehicle company, Sinotruk Chengdu Wangpai Commercial Vehicle Co., Ltd. (tentative name), in Chengdu. Ma Chunji, chairman of Sinotruk, Cai Dong, president of Sinotruk, and Yuan Chengjun, chairman of Wangpai, attended the signing ceremony together with local government officials.
Enhance product portfolio
Based on the agreement, Sinotruk will provide funds for 80 percent share of the new company while Wangpai holds the rest of the stake. The Shandong-based truck builder will first inject ¥1 billion ($147 million) for near-term projects and ¥3 billion later for long-term development.
Once established, the new company will allow Sinotruk, which currently only produces heavy-duty trucks and special-purpose vehicles, to expand its product portfolio to a full range of commercial vehicles, from heavy-duty to mini vehicles, as well as Wangpai’s original product lines.
The marriage between the two companies is expected to have an annual production at 100,000 medium and heavy-duty trucks and 300,000 light and mini trucks by 2015. Next year, the 100,000-unit medium and heavy-duty truck project will be launched first. Future heavy-duty trucks from the new company will be labeled under Sinotruk, and the rest of the product lines will continue to use the Wangpai nameplate.
According to CBU-Autostats, Sinotruk, headquartered in Jinan, Shandong Province, sold 107,754 heavy-duty trucks in the first seven months of 2010, up 59 percent over the same period last year. The company ranked third in the heavy-duty truck market and topped all other players when it comes to sales of heavy-duty trucks over 15 tons. However, comparing with its competitors, such as FAW, Dongfeng and Beiqi-Foton, the truckmaker finds a constrained development perspective, due to a single product line with only heavy-duty trucks on board.
Established in 1987, Wangpai has developed mature sales and aftersales networks, including 16 agencies, over 400 dealers and 300 aftersales service providers across 29 provinces, for its light and medium trucks. By cooperating with Wangpai, not only will Sinotruk be able to reform itself into a full-ranged commercial vehicle builder with light truck products, it will also enjoy an expanded sales network.
Enlarge market share in West China
In addition to Wangpai’s different product lines, the geographic advantages from the Sichuan-based automaker have been another driving factor for Sinotruk’s investment decision.
In 1999, the central government launched its “West China Development Strategy” in order to help and promote regional economic development in this vast area. A number of 12 less developed provinces in West China, taking up 71 percent of China’s total area, were listed in the project. Trillions of money has been funneled into local infrastructure construction projects since then, and demand for heavy-duty trucks has increased steadily as a result.
On July 4, the central government held a national congress to re-emphasize its determination on the West China development, with a 10-year plan published. Right on the congress, 23 key projects, scheduled to launch before the end of this year with total financial support at ¥682.2 billion, were announced. It is believed that enormous government construction projects will significantly boost the local heavy-duty truck and construction machinery market.
Moreover, China has carried out a series of reconstruction projects after the Sichuan earthquake in 2008, which already boomed the local demand for dumping trucks. As reported, Sinotruk, with product advantages in heavy-duty dumpers, saw sharp annual sales growth from originally 1,000 units to around 7,000 units in 2009. Therefore, by working with Wangpai, Sinotruk will be able to set up a production base in Sichuan quickly and seize the remaining sales opportunities from the reconstruction projects in the province. Furthermore, through Wangpai’s sales channels, Sinotruk will be able to take more market shares in West China by providing more heavy-duty trucks and other commercial vehicles timely to meet the increasing demand in the region.
Invest in local industry through win-win cooperation
The central government promulgated the Automotive Industry Readjustment and Revitalization Plan on March 20, 2009. Sinotruk, as one of the eight leading homegrown automakers listed in the Plan, has been encouraged to engage in cross-province mergers and acquisitions. The heavy-duty truck builder, which already acquired Guangxi Liuzhou Yunli Special-Purpose Vehicle, Hubei Huawin Special Vehicle, and Datong Gear in 2008, established Sinotruk Mianyang Fulin Special-Purpose Vehicle in April of last year. The Wangpai project is the truckmaker’s latest move as it tries to expand its presence nationally.
Wangpai, located in Chengdu, the provincial capital of Sichuan, currently manufactures light and medium trucks, special-purpose vehicles and low-speed trucks. Facing to the increasingly fierce market competition, the company has found it difficult to grow independently in the recent years, as revealed by executives from Wangpai. Also the company suffers from lack of output capacity. The automaker prefers to be supported by a national-scale automotive group with more funds injected. Therefore, when Sinotruk approached Wangpai, the two sides found the cooperation a win-win deal, and a quick agreement was reached.
According to an insider from Wangpai, Sinotruk initiated a local investment proposal with Sichuan government about half a year ago with original plan to acquire another local automaker, Sichuan Nanjun Automotive (Nanjun). The Shandong-based truckmaker turned to Wangpai only two months ago, when the negotiation with Nanjun ended fruitlessly.
A source close to the project said apart from Wangpai’s original plant, another manufacturing shop, covering 1.33 square kilometers, has been planned for the new company.