Auto Industry

Red flagged

FAW to restructure ‘national car’ division as sales sag

Chinese President Xi chats with former Chinese President Jiang watch a military parade to commemorate the 70th anniversary of the end of World War Two in Beijing

The Hongqi limousine

The recent G20 meeting in Hangzhou threw up a number of new groupings, but none was quite so unusual as the one formed by Russia, Turkey, the US and Saudi Arabia. While other world leaders chose to keep their host, Xi Jinping, happy by arriving at the summit in one of China’s Hongqi limousines, Presidents Obama, Putin, Erdogan and Saudi deputy crown prince, Mohammed bin Salman bin Abdulaziz, all chose to use their own cars instead.

It was probably a disappointment to the FAW group, which produces the L5 model with its distinctive red flag jutting up from the bonnet.

But more distressing will have been the recent interim results of its Shenzhen-listed subsidiary, which are now flashing up red as well.

As we reported in WiC330, FAW is struggling to make good on a 2012 commitment to restructure FAW Car and FAW Xiali, which act more like rivals than sister companies. In late August, FAW Car reported a first half net loss of Rmb826 million and sales down 34% compared to the year before.

Hongqi, which translates as ‘Red Flag’, has been one of its key problems. The brand may appeal to older patriots and Party dignitaries, but it has never caught on among China’s nouveau riche, which typically prefer luxury foreign marques.

According to Economic Observer, FAW Car sold 2,000 Red Flags during the first seven months of the year compared to 5,037 in 2015. The newspaper estimates that amounted to a capacity utilisation rate of only 15%. So it is perhaps not that surprising the parent is now transferring Hongqi out of its listed subsidiary, which has been struggling to find funds for R&D.

Industry analyst Jia Xinguang tells Global Times the move will liberate FAW Car. It will also enable the parent to carry on making the Red Flag limo without shareholder pressure or so much public scrutiny about its dwindling sales numbers.

Group president Xu Xiaping once called Red Flag the “gold standard” for FAW. But he too has been affected by the restructuring. In late August he was moved to run Genertec, another large SOE that employs 45,000 and straddles pharmaceuticals, industrial equipment manufacturing and real estate. WiC confesses this is the first time we’ve come across this company – and that’s after almost eight years of publishing. That tempts us to suspect it was not a promotion, though we could be wrong…

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