BAIC plans acquisitions in country, abroad

BAIC Group, the Chinese partner of Daimler AG and Hyundai Motor Co, plans to acquire one or two domestic automakers this year, according to the company's senior management.

Xu Heyi, chairman of BAIC, said in a press conference in June that BAIC will make at least one major acquisition in the second half of this year.

"If things go well, it is possible to ink two deals before the end of the year," Xu said, indicating that BAIC is eyeing on some State-owned companies.

Xu's remarks have set off a wave of speculation within the industry as to which company will be the target of its takeover. One possibility is a little-known commercial vehicle manufacturer in Zhenjiang, Jiangsu province. According to media reports, BAIC has been in talks with the Jiangsu provincial government about possibly restructuring the Zhenjiang Auto Works to serve as its production site in East China.

To prevent overcapacity, current industrial regulations do not allow existing manufacturers to build plants in new sites outside their home city unless they acquire a local manufacturer that already owns a production certificate.

According to reports, BAIC wants to build a plant in Zhenjiang with an annual capacity of 300,000 off-road vehicles and vans.

In addition to its northern home base in Beijing, BAIC also has production facilities in Zhuzhou, Hunan province. In 2010, it extended its foothold to the west by cooperating with a local motorcycle maker in Chongqing. And the next year, it set up a southern base by buying a local manufacturer in Guangzhou.

Not alone

BAIC is not alone in actively seeking possible acquisitions of smaller domestic carmakers to expand territory.

With the goal of setting up a southeastern production base, Hubei's Dongfeng Motor Co in May agreed to buy a 45 percent stake in Fujian Motor Industry Group Co Ltd.

The company announced that it may increase to a controlling stake in the future.

It is the biggest consolidation in the nation's fragmented auto industry since 2009, when Chang'an Automobile in Chongqing acquired the two automobile manufacturing subsidiaries of aircraft maker AVIC.

The Chinese government has long called for consolidation in the auto industry.

Earlier this year, the Ministry of Industry and Information Technology and 11 other ministries stressed in a new guideline for nine industry sectors that the auto industry should cultivate three to five large auto groups with core competitive strength by 2015.

With annual sales of 1.7 million units last year, BAIC now ranks fifth among domestic auto groups, following SAIC, Dongfeng, FAW and Chang'an.

Like its counterparts, the company has to constantly expand to stay in the top echelon.

It plans to more than double annual sales to 3.6 million units by 2015.

But some analysts question whether rapid expansion alone can truly improve competitiveness."Responding to the government's call, carmakers are eagerly expanding the size, but they are not necessarily getting stronger," said John Zeng, director of Asia Pacific Forecasting at LMC Automotive.

Lin Huaibin, an analyst with IHS Automotive, said that such acquisitions can help avoid waste of resources for the country, but automakers should not lose sight of the goal of making indigenous brands more competitive.

Overseas ambition

BAIC is not limiting its acquisitions to China, according to the company.

Dong Haiyang, vice-president of BAIC's newly established overseas unit, disclosed at the same press conference that the company plans to buy a "medium and high-end" European brand. "We received materials from two companies and are studying the feasibility," Dong said.

BAIC wants to build its base in Europe through acquisition and make inroads in the market, he said.

The company plans to greatly boost exports to 400,000 units by 2020.

Lin said it is difficult for Chinese carmakers to enter mature markets like Europe with their homegrown brands, so it is better to buy an existing brand.

He noted that "currently domestic carmakers can see better returns by exploring the developing countries rather than mature markets."

"Competition in developing countries is not that fierce, and there are lots of opportunities," he said.