Chinese Automakers Merge

123jump.com Staff
26 Dec, 2007
New York City

Shanghai Automotive Industry and smaller rival Nanjing Auto merged after China encouraged industry consolidation. Chinese auto industry is expected to grow to 8 million units in 2008 and has 45 automakers. The fiercely competitive industry is long anticipated to consolidate and foreign makers add capacity for the local market. Toyota and Volkswagen expect to increase capacity by 10% in the next year.

[R]9:00AM New York – 9:00PM Hong Kong – SAIC and Nanjing, two Chinese government controlled auto makers merged to compete in a fiercely competitive local market and rising foreign competition.[/R]

In a fast consolidating auto industry in China encouraged by the government largest auto maker, Shanghai Automotive Industry Corp today agreed to purchase Nanjing Automobile Group for 2.1 billion yuan or $286 million.

Both companies controlled by Chinese government were encouraged to merge in the face of rising competition and growing market in China. Auto sales in China are expected to climb 29% in 2007 and another 15% in 2008 to cross eight million units.

Shanghai Automotive will allocate 320 million shares or 4.9% stake in the company to shareholders of Nanjing Auto Group parent Yuejin Motor. The two merging companies will also set up joint venture Dong Hua Company that will own parts and services divisions of Nanjing. Yuejin will control 25% and the rest will be owned by Shanghai Auto.

Nanjing Automobile, smaller auto maker with less than 1% market share has seen it sales declined in nearly 9% in 2007 and struggled in the past to attract customers. In 2005 it paid $97 million to purchase UK based MG Rover Group. The company also has alliance to make cars and commercial vehicles with Italian company Fiat SpA.

Shanghai Auto has joint ventures to make cars with Volkswagen and General Motors has the largest market share with sales of more than one million vehicles followed by Volkswagen and Toyota.

Nanjing will continue its alliance with Iveco, truck making subsidiary of Fiat, to make light commercial vehicles.

Shanghai Auto, favored by the Chinese government is prepared to compete with the rising competition from European and Japanese companies. After the merger of two companies, Shanghai Auto expects its sales to increase to 2 million units by the year 2010.

SAIC, as it is popularly known, jumped 2.7% in yesterday’s trading to 27 yuan ahead of today’s announcement when the stock was suspended from trading.


[R]8:00AM New York, 10:00PM Tokyo – Asia markets closed higher led by a sharp surge in India, Japan, and Indonesia.[/R]

Asian markets closed higher on the optimism on earnings and expectations of better than expected retail sales in the U.S. during holiday period.

In Tokyo Nikkei 225 Index closed higher 100.95 or 0.65% to 15,653.54. Market of Hong Kong and Australia were closed today.

Dollar edged higher in the day’s trading lifting export sensitive stocks. Cannon, Toyota closed higher.

Toyota revised its annual forecast for auto sales for the fiscal 2008 to 9.85 million cars from 9.8 million on rising sales in Asia. Sales growth for Toyota and other automakers in Japan has been lackluster. Toyota jumped 1.2% to close at 6,180 yen.

Mitsubishi UFJ Securities forecasted one of the most bearish outlooks for dollar against yen. The forecast from the chief economist suggested that dollar could fall to 95 yen in 2008 and may take another year to recover. Most economists in Japan are looking for dollar to trade between 110 and 105 yen.

Dollar has lost more than 10% against most Asian currencies but has declined the most against euro in 2007 and in the last four years. Dollar has lost 5% against yen and most economists expect dollar to slide another 3% to 5% in the year 2008.

Sanyo Electric plunged 11% after the Tokyo Stock Exchange said that the company may be delisted.

Central Japan Railway declined 9% to 1.028 million yen after the company announced plans to build 5.1 trillion yen train link with little financial plan in place. Investors feared that company may take additional debt or sell equity to fund the project.

In South Korea Kospi Index increased 12.75 or 0.66% to close at 1,906.72, in Thailand SET index closed up 2.08 or 0.25% to 841.20, and in Indonesia JSE Index edged higher by 56.57 or 2.13% to 2,714.55. Sensex index in India surged 338.40 or 1.70% to 20,192.52.

Shipbuilders in Korea added as investors bet that the rising oil prices will keep order for new tankers flowing. STX Shipbuilding jumped 4% to 48,000 won.

SK Energy, the largest oil refiner in Korea, fell 3% to 1178,500 won as the spreads between the crude oil and refined crude fell in the international markets. SK was also fined along with other chemical makers for price fixing. The total fine levied on all the companies was 54.2 billion won.

Sensex Index in India surged 1.7% or 338.40 to close at 20,192.52. The index jumped higher on rising expectations for the third quarter earnings and the government permitting the charitable trusts to invest in stocks and bonds of listed companies. The permission will open doors for trusts with more than 25,000 crore rupees to allocate funds to the booming stock market.

Reliance Industries jumped 4% to 2,896 rupees, HPCL surged 7% to 340 rupees, and Indian Oil added 5.5% to 475 rupees.

Metals and mining stocks led the gainers in the index. Hindalco Industries jumped 4% to 209 rupees, Sterlite Industries added 2.6% to 1,026, and Hindustan Zinc increased 2.6% to 791 rupees.