Heading south

In 1985 a Chinese version of the Cherokee Jeep rolled off the production line at a factory in Beijing. It was the result of one of the earliest joint ventures between a Chinese car firm and a foreign automaker, in this case American Motors Corporation, which two years later would be acquired by Chrysler. Germany’s Daimler then bought Chrysler and the joint venture was renamed Beijing Benz. It began to produce Mercedes sedans rather than jeeps.

The longstanding Chinese partner is BAIC Auto, which holds a 50% stake, as does Daimler. Another of Daimler’s joint ventures in China is Fujian Benz, which was established in 2006 in partnership with Fujian Motor, with a focus on larger vehicles like minivans and people carriers. Both Daimler and BAIC have been trying to consolidate the two operations and a deal to do so was finalised last month.

At the signing ceremony in Fuzhou, BAIC bought 35% of Fujian Benz, while Fujian Motor saw its stake reduced to 15% (Daimler maintains its 50% share). Time Weekly reports that Daimler is keen to reinforce its relationship with BAIC and to “integrate its channels in China”. That seems to mean that the new structure will bring Daimler production in the north of the country (Beijing) and the south (Fujian) under a single command.

Xu Heyi, chairman at BAIC Group, was upbeat on the logic for the move, signalling that Fujian Benz would serve as an important base for BAIC in southern China too.

Fujian Motor was looking like a financially constrained partner for the German auto firm. Earlier this year its chairman Lian Xiaoqiang was arrested for corruption and in April Fujian Benz reported zero sales or production for the month. Aside from its Daimler-designed vehicles, it had failed to develop successful models of its own, leading to its marginalisation in an industry dominated by bigger homegrown firms such as FAW and BAIC.

Bloomberg says that over the past decade Daimler has trailed its German peers BMW and Volkswagen in China because of what consumers perceived as an outdated product range. Bad blood was also created because of aggressive “competing sales operations” for its locally-made and imported vehicles.

But the recent release of a series of newer Mercedes models – including SUVs – and increased efforts since 2012 to call a truce on its internal sales war have helped Daimler make up some of the lost ground.

In fact, it started the year with record sales in China that surged 36.4%, outpacing the 11.2% growth at BMW in the same quarter.

Reuters says a locally-made long-wheelbase version of Mercedes’ bestselling C-Class has helped it close the gap with its rival from Munich, although BMW still outsells Mercedes in the Chinese market. Hubertus Troska, Daimler’s China boss since 2012, has played down when his firm will overtake BMW in the world’s biggest car market.“We don’t need to be number one in China to become the global number one,” he reminded reporters at the Beijing Auto Show this year.

With the Fujian operation now part of a more unified structure, there will be a push to use the refortified presence in the south to make and sell the new Mercedes-Benz V-Class people carrier, which was launched to positive reviews in Europe last year.

Daimler’s senior executives in Stuttgart will also have been interested in remarks made by a senior government official at the World Economic Forum in Tianjin last week. Xu Shaoshi, a minister at the National Development and Reform Commission, said that the central government is looking to lift the cap on joint ventures in the automotive sector above 50%, meaning the foreign partner could gain control.

As China Daily notes: “Pressure to lift the cap is coming mainly from foreign governments, with the US having voiced strong dissatisfaction with the current situation during bilateral investment discussions.”

Should that occur, Daimler’s next M&A move might be to buy out struggling Fujian Motor’s remaining 15% in Fujian Benz.

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