Delivering returns?

Can Renault turnaround Jinbei?

An offer to buy half a company for the price of just one yuan (about 15 US cents) would normally get the alarm bells ringing.

But in Renault’s case it seems to have been a risk worth taking, after the French carmaker inked a deal with Brilliance China Automotive this month to revamp its minibus unit Shenyang Jinbei.

Jinbei has been bleeding cash with Rmb1.1 billion ($162.5 million) in losses over the last two years and it has liabilities of more than three times that, which is why Renault is paying the token fee for its 49% stake.

The two firms will invest Rmb1.5 billion in proportion to their shareholdings to build on Renault’s expertise in light commercial vehicles, including the Trafic and Kangoo Express vans, which grabbed about 16% of sales in Europe last year.

About 3 million delivery vans and light trucks were sold in China in 2016, or roughly 13% of the market. Three local manufacturers – Wuling, Dongfeng and Chang’an – control about 80% of Jinbei’s target market but analysts seem optimistic about its prospects in rural areas. Another factor in the venture’s favour is the boom in e-commerce, where smaller, more versatile vehicles are becoming more important for ‘last-mile’ deliveries.

New energy vehicles got a mention in the announcement too. Renault already makes four different models of electric van and it will help Jinbei to electrify some of its own range. Under current rules on EVs, foreign brands produced in alliance with local partners can’t be sold in China, but their domestic equivalents can, so Renault’s technology might end up being rebadged in Jinbei vehicles.

Brilliance enjoys a more successful partnership with BMW – it’s the sole provider of the German manufacturer’s China-produced cars (see WiC287) and its investors will be hoping that its Hong Kong-listed shares will do better with less of a drag from Jinbei.

Officials at Liaoning’s provincial Sasac team – the agency that manages state-owned assets – have pushed hard for the deal, says the Economic Observer, because the Shenyang-based firm has been surviving on state handouts for years.

As we reported in WiC204, Renault is a late starter in China, committing to its first joint venture with Dongfeng Motors in 2014 and opening its first plant for the production of sports utility vehicles in Wuhan last year. This cautious approach contrasts with its experience in Japan, where it bought 43% of debt-riddled Nissan in 1999, a stake that has since tripled in value.

That has led to criticism that Renault doesn’t have enough skin in the game in China, and there have even been suggestions that it struggles to make its voice heard with Dongfeng, which has ventures with five other foreign carmakers.

The Economic Observer reports that Renault turned first to Dongfeng for its van venture, for instance, but that its partner tried to drive a hard bargain, so the French firm declined.

Indeed, BMW chose Brilliance as its Chinese production partner partly because of its reputation for being “more obedient” than other state-owned carmakers, the newspaper also claims.

Meanwhile the Wall Street Journal reported this week on traffic going the other way – i.e. auto investments by Chinese firms overseas. It noted that eight deals amounting to $5.5 billion were signed in the first half of this year, compared to a total of nine auto deals inked abroad in 2016. The transactions included Ningbo Joyson’s $1.59 billion purchase of bankrupt Japanese airbag maker Takata last month; and Geely’s acquisition of US flying car start-up Terrafugia.

A spokesperson for Ningbo Joyson told the Journal that – with much overseas M&A being vetoed by Beijing – its transaction demonstrated the car sector’s strategic value to Chinese policymakers.

Since 2008 Chinese entities have invested $34 billion overseas in the auto sector, the US newspaper calculates. That’s quite a bit more than the 15 cents Renault’s forked out for Jinbei…

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