It is not the best time for M&A and restructuring
Moderator: Recently, there have been a lot of rumors about Changan Automobile. One argument is that Changan Automobile should reorganize the Changhe shares, which are seriously losing money. Another argument is that FAW Group should integrate Chang'an. At the time of SAIC NAC's merger and signing, including you, Xu Ping, General Manager of Dongfeng Motor, Xu Heyi, Chairman of Beijing Automotive, and Zhang Fangyou, Chairman of GAC, were invited to attend the event. The official from the National Development and Reform Commission said, “Please, everyone. The purpose of coming is to be educated." This sentence contains special meaning. What do you think of the "big car" strategy of "government-led, market-oriented trading"?
Xu Liuping: At that time, the National Development and Reform Commission demanded that "top leaders" should participate. I am meeting in Beijing and I am sure to go. SAIC NAC has its own particularities. They have divided Rover's assets, one took intellectual property rights, and one took a production line. Even if there is no cooperation in the capital sense, it will certainly produce another level of cooperation.
Structural adjustment will become the main theme of the automobile industry. The structural adjustment of China's auto industry will focus on suppressing excess production capacity, encouraging independent innovation, and developing energy conservation and environmental protection. Some auto companies with small scale, weak technical strength and high costs will gradually be forced to withdraw from the market or be merged by dominant companies, and finally form a few monopoly groups. However, mergers and acquisitions that do not help increase core competitiveness are doomed to be useless. Mergers and integrations must be combined to produce positive and effective synergies. Otherwise, they will not only reduce costs, but will also drag on each other. For the Chinese auto industry, it is only meaningful to realize the reorganization of reducing costs and complementary resources. On the contrary, there is no practical significance to simply investing in large-scale acquisition of a company. It may cost $1 billion to buy and $100 million to sell. This is a common occurrence in the automotive industry.
The future is the golden age for the development of China's auto industry. At present, it may be difficult to make a difference. However, once the pattern is constant, it will be difficult to catch up with hundreds of millions of sales income. Because, market opportunities, profits, and capital will naturally converge to dominant companies. In such a period, it was indeed a big wave of scouring the sands.
With regard to "Big Cars," the media has been making this topic hotter. I think it is still necessary to return to the fundamentals and look at the problems. Whether or not M & A or restructuring depends on whether or not we can create value. As far as the Chinese auto industry is concerned, I have not seen too much integration in value creation. Faced with the tide of mergers and acquisitions, Chang'an must have a sober stand and judgment. There should be a rational and calm judgment on the auto industry, otherwise it will be easy to go wrong and out of trouble.
There is no point in the rumors about Chang’an. Here, I would like to show that Chang’an’s basic attitude, mergers and acquisitions that have synergies and value innovations will be actively considered, otherwise they will absolutely not do so. Frankly speaking, the Chinese auto industry is not the best time to merge and restructure. There is still room for growth in China's auto industry and it needs to develop rapidly. Changan has frequently made efforts in its own brands, and its pace has been accelerating, but it has not achieved its ideal.
Moderator: In fact, Changan has been seeking to become bigger and stronger through an integrated approach. For example, in 2004, Changling incorporated Jiangling into the Chang'an system, thus making a big step towards the “big three†in terms of scale. However, to date, JMC’s self-developed SUV products by Changan have not performed well in the market. The pessimistic forecast is that from 2007 to 2009, Jiangling Holdings will have difficulty reversing losses.
Xu Liuping: Regarding losses, it is normal from the perspective of investment. There is a payback period for any product, and the recycling cycle for automotive products in the five or six years is normal. According to the six-year investment payback period, if the profit and loss can be balanced in the first four years and the following two years, it is normal from the perspective of product launch and industrial management. Now that our investment in JMC is in the investment phase, the investment is now under control. We have also followed a very beautiful SUV in Jiangling.
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