From Industry, page 33, issue no. 409, March 9, 2009
Translated by Tang Tang
Original article: [Chinese]

Beijing Automotive Industry Co. may get a head-start in restructuring and oversea acquisition with some 10 billion yuan of funding from the Beijing Municipal government, the EO has learned.

The company is one of eight Chinese auto giants highlighted in a recent government blueprint to revitalize the auto industry. Strategies mentioned in it included promoting merger and consolidation among the eight companies.

Sources told the EO that Beijing Automotive had already set up a special team to deal with mergers and acquisitions, with targets including homegrown Fujian Motor and the beleaguered US auto giant Chrysler.

The EO learned that under the plan, state-owned Beijing Automotive would devote 500 million yuan to acquiring Fujian Motor; with remaining funds going to buying a portion of Chrysler's assets, including rights to seven car and engine models, one research and development center, and production lines.

Beijing Automotive president Wang Dazong had led a team to the US recently to negotiate the deal, a source revealed.

Domestic Target: Fujian Motor
The global financial crisis fallout and slowing demand have opened up opportunities for Beijing Automotive to acquire cash-strapped industry counterparts at home and abroad.

Take for instance Fujian Motor, a provincial government-owned company--it only sold 23,800 cars in all of last year, a 44% year-on-year drop. Its sales volume had been in the decline for three years in a row.

In addition, Fujian Motor's joint venture projects with Chrysler and Daimler failed to yield desired results, and the accumulative losses had started to take a toll on the company.

Concrete talks between Beijing Automotive and Fujian Motor had yet to take place, revealed a source. The former wanted to wait for further clarification and implementation of government policies contained in the recently-released blueprint to revive the auto industry.

The blueprint stated that further supporting policies to accelerate mergers and restructuring in the industry would be introduced sometime in July.

Sources familiar with both Beijing Automotive and Fujian Motor said that despite supporting policies from the state, three major challenges remained for the merger plan.

First, not only were the two were geographically apart - one in the north and the other in the south, they also had many projects with foreign interests from Germany, Japan and the US, and thus would face vast cultural differences in achieving consensus.

Second, various interest cliques existed within Fujian Motor. Previously, its shareholders had been in such disagreement over the Mitsubishi Co. acquisition that it failed to churn out new models for two years.

Third, the issue of capital. Even with local government funding, Beijing Automotive would still have to invest heavily upon acquiring Fujian Motor, which had a debt ratio reached over 90%.

Foreign Target: Chrysler & Delphi
Despite cautionary notes from China's top economic planners against Chinese companies rushing abroad to buy ailing foreign assets at low prices, Beijing Automotive appeared determine to seize the moment, and set eyes on its long-acquainted friend - Chrysler, and possibly the spare parts giant Delphi.

Co-operation between Beijing Automotive and Chrysler could be traced back to the early 1980s, when the two jointly set up a car assembly line.

Though Beijing Automotive once denied being interested in Chrysler, sources close to the matter said a special team led by five top staff in the company were looking into the matter.

Sources revealed that Beijing Automotive was more interested in acquiring technology and brand power through the acquisition, thus Chrysler's research and development center was one of the targets.

However, when contacted, Chrysler's management in China said it had yet to hear from Beijing Automotive on the deal.

The EO also learned that Beijing Automotive was also interested in buying part of the assets of Delphi, which was reportedly in the process of chopping its non-core businesses.