On May 7, Xu Ping was appointed the new chairman of FAW Group.
A day earlier, Zhu Yanfeng succeeded Xu as the new chairman of Dongfeng.
This represents an executive swap, by order of the Central Party Committee’s Organizational Department, of the chairman at China’s oldest state-owned automobile groups, First Auto Works and Second Auto Works (now Dongfeng), known respectively as the country’s “elder” and “second” son in the automotive sector because they are administered directly under the State Council.
Zhu had been president of FAW from 1999 to 2007 before elevating to deputy governor and deputy Party secretary of Jilin Province in Changchun, where FAW is based. Xu on the other hand has been with Dongfeng his entire career, becoming chairman in 2010.
The appointments came on the heels of recent anti-corruption probes at both companies. Several senior executives including former FAW chairman Xu Jianyi have been taken away or sentenced to prison for violating Party rules. Earlier, Dongfeng deputy Party secretary Fan Zhong and key executives at its JVs were also investigated.
While it is an uphill battle for both Zhu and Xu to steer China’s two largest and bureaucratic state-owned automakers into new phases of development, especially elevating their respective independent brands as the market slows significantly, Xu faces a much tougher challenge at FAW than Zhu does at Dongfeng.
FAW has been mired in negative press not only because of corruptive scandals but also because of underperforming independent brands including the Red Flag, Besturn, Xiali and Oley, as well as the recent “Sagitar axle gate” at FAW-Volkswagen. Group sales have fallen to No. 4 among major Chinese automakers in the first quarter of 2015 after dropping to No. 3 behind Dongfeng last year.
Dongfeng has been able to capitalize on China’s reform and joint venturing to transform itself into a market-oriented company with a unique corporate culture of its own. Through an extensive tie-up with Nissan, Dongfeng was able to absorb modern corporate management skills and has developed an open and transparent operational model for a large state-owned enterprise group.
FAW, on the other hand, has squandered its vast state-owned resources and converted them for personal grains and fortune. It is no surprising that FAW’s efforts on building and developing independent car brands, despite huge investment, have led to no real market results.
For Zhu, Dongfeng has become the “FAW of his dream.” Opportunities seem to outweigh challenges. But for Xu, the biggest challenge is whether he can emulate Dongfeng’s unique corporate culture in Changchun and realize a fundamental overhaul of the ailing FAW.
The appointment indicates that central authorities are trying to initiate further reforms of the country’s large state-owned enterprises through further reforms and opening up. Some even speculate that it may lead to the merger of the two largest auto groups. But analysts believe this is unlikely.
For one thing, FAW and Dongfeng have both grown into a huge bureaucracy of its own. The creation of a behemoth state-owned auto group would make the companies even less competitive in the market of consumer products.