Chery, GAC in auto tie-up

Two domestic auto firms announced a tie-up in vehicle development and resource sharing Tuesday, the first alliance of this type among Chinese automakers, and some analysts said more similar partnerships may follow.

Chery Automobile Co, the largest self-owned auto firm in China, signed a cooperation deal with Guangzhou Automobile Group Co (GAC) Tuesday in Beijing, saying they would cooperate over key auto parts and in the energy-saving field.

"The cooperation will help us sharpen our competitive edge and can assist GAC in research and development," Chery spokesman Huang Huaqiong told the Global Times Tuesday.

The move will enable GAC to use Chery's small-scale vehicle platform and supply chain, which can assist its medium- and high-end market orientation, Wu Song, vice general manager of GAC, was quoted as saying by the Beijing-based newspaper Economic Observer.

"The tie-up is a meaningful step for Chinese auto producers," Zeng Zhiling, an auto industry analyst with Shanghai-based research firm JD power, told the Global Times Tuesday.

Some recognized global brands have also announced similar moves, Zeng noted. PSA Peugeot Citroen Group, for instance, confirmed in October that it will cooperate with General Motors on four vehicle platform development projects.

Sharing resources like vehicle platforms and supply chains can help automakers to cut costs and risks and shorten the time it takes to develop and market a new model. This is what Chery and GAC now need, Zeng said.

GAC has spent some 8 billion yuan ($126.7 billion) developing and marketing its Trumpchi range of cars and some 7 billion yuan more will be invested by the end of 2015, according to GAC.

But despite this heavy investment, sales have been disappointing so far. The Trumpchi GS5 SUV, which went on sale last year, has sold less than 3,000 units a month on average, the Economic Observer reported Tuesday.

Besides poor sales, GAC has also had capital flow problems. According to the company's financial report released at the end of October, it made a net profit of 357 million yuan in the third quarter of 2012, a sharp drop of 58.4 percent year-on-year.

Meanwhile, rivals like Chongqing Changan Automobile Co and Shanghai Automotive Industry Corporation (Group) have seen a rise in net profit.

GAC Honda and GAC Toyota, which together contributed 94 percent of the group's profits in 2011, suffered a slide in sales over recent months and are expected to suffer further poor sales in the fourth quarter, according to industrial insiders.

For years, Chery has been investing heavily in developing vehicles, but it has also had difficulties turning the fruits of its research into profits, Zeng said. So the company needed to find partners to share research costs and shorten the cycle of developing a new model.

The government has been encouraging large-scale auto producers to conduct mergers and acquisitions since 2009, and the move by Anhui-based Chery and Guangdong-based GAC can promote structural adjustment and industrial upgrading in the sector, industrial analysts said.