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Jin Jing
2006-08-16
TO some, the decision by Wuliangye Group Co Ltd, one of China's largest alcohol producers, to go into the nation's booming auto industry may be as risky as driving a car while drunk.

The alcohol giant announced last Tuesday its subsidiary, China Push Group International Co Ltd, plans to spend 384 million yuan (US$48 million) for 46.5 percent of Xinhua Diesel Co Ltd, an affiliate of Brilliance Automobile Go Ltd.

Xinhua would then be able to turn out 100,000 vehicles annually in addition to 500,000 units of engines, generating additional sales revenue of 8 billion yuan annually.

Brilliance has set a target of an extra 10 billion yuan in sales by 2010 for Xinhua.

"One of the reasons behind the investment in the auto industry by other companies is to find a way to maximize excessive capital," said Jia Xinguang, chief analyst at China's National Automotive Industry Consulting and Development Corp.

Slow Growth

Wuliangye is already ranked No. 1 in both wine sales and profit in the industry. Last year, its sales revenue totaled 15.7 billion yuan, up 370 million, or 9.68 percent, from a year earlier.

However, its sales growth has been slowed due to a shrinking domestic alcohol market, as well the rise of its biggest competitor, Kweichow Moutai Co Ltd.

"The auto industry could be an ideal choice for Wuliangye to create another business with its high added value," Jia said.

The consolidation of Wuliangye and Brilliance, the domestic partner of BMW Corp, has opened the way for the former to roll out vehicles - a first for a wine producer. But, it is not the only example in the auto industry.

Since the first round of development and rapid growth of the auto industry in 2003, companies outside the sector such as electric appliance, cell phone, battery, tobacco and motorcycle makers, have all eyed aggressively the profitable auto market.

But the question being asked was whether Wuliangye could succeed after most of the other non-carmakers suffered disastrously in the industry.

The failed Greencool Technology Holdings Limited, parent company of Guangdong Kelon Electrical Holding Co Ltd, paid 417 million yuan for 67 percent in Yaxing Motor Coach Co Ltd. The companies collapsed due to financial embezzlement and severe cash flow problem last year.

Firms Withdraw

Aux Group Co Ltd, a leading manufacturer and exporter of air conditioners, electric energy meters and transformers, quit the auto industry in 2004, one year after it bought a 90 percent stake in Shenyang-based automaker Shuangma to produce sports utility vehicles and tractors.

It sold 2,000 units of Aux-branded SUVs in 2004, only one tenth of its original target of 20,000 units.

Zhejiang Province-based Bird Co Ltd, a maker of cell phones under its own name, ended its carmaking dreams by withdrawing its investment from Nanjing Automobile Group in August 2004.

Others including Yunnan-based Hongta Group, one of the largest state-owned tobacco producers, and Amoi Electronics Co Ltd also took similar steps.

Fueled by impressive economic growth and a huge market potential for cars, China's auto market took off in 2003.

Vehicle sales jumped 35 percent to 4.39 million units from a year earlier and car sales even soared 75 percent to 1.97 million units .

The pickup in sales helped the industry to a 71.7 billion yuan profit, with sales revenue amounting to 832.8 billion yuan during January to November 2003. The profit rate was around 10 percent, surpassing three percent to five percent globally.

With an influx of private investments in the industry by firms hoping to make a quick buck, vehicle production capacity had increased rapidly and before long, the industry faced a threat of an over-supply situation.

The Chinese government tightened its entry threshold for new carmakers and establishment of new plants to rein in the surge in investments.

According to the new Industrial Policy For the Auto Industry issued in 2004, the total investment in a new carmaking project should not be lower than 2 billion yuan, with a minimum own capital of 800 million yuan.

Existing carmakers which fail to maintain normal production are also banned from selling its production license to other non-carmakers.

"The stricter regulation poses high capital pressure on the smaller-sized companies but it managed to apply a brake" on the number of firms hoping to break into the sector, said Hu Song, an auto analyst from Haitong Securities Co Ltd.

Driven Out

"Despite the macrocontrol, the falling profit and stiff competition posed by more and more international auto conglomerates and major domestic players gradually drove the non-professional rivals out of the market."

After a two-year boom, the auto market cooled in 2004 when the growth in sales fell to less than 10 percent.

"Most of them did not make the cut as they were short of related technology, research and development capability and a distribution network," Hu said. "After all, this is a market with high risks, and only firms with enough financial support (or technology) would have an advantage to eventually survive."

BYD Auto Co Ltd, a subsidiary of Hong Kong-listed BYD Company Ltd, the world's second largest rechargeable battery producer, represents an example of a firm with related auto technology because it makes batteries for vehicles.

The carmaker expanded its product portfolio from compact cars to mid-to-high sedans, fuel-cell vehicles and hybrid vehicles three years after it was set up.

For the first half of this year, its sales jumped more than six folds to 30,000 units from the same period of last year.

People may not remember that one of the most well-known private carmakers in China, Geely Automobile Co, was originally a motorcycle manufacturer in 1997.

The firm, whose cars sell for less than US$5,000, is increasing production and making higher-priced models to boost its market share in China. It aims to sell 180,000 cars this year, a rise of 35 percent from last year.
http://www.shanghaidaily.com/art/20...rive_profit_in_China__039_s_auto_industry.htm
 

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Tracy-CAE said:
Geely is a major player of small cars in China, but anyway it can't compare with Cheery.
Geely n chery sales droped a lot in July
most likely because the car price drop n
new crash test will be apply in china
 

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Hongta in Yunnan

ash said:
........."The auto industry could be an ideal choice for Wuliangye to create another business with its high added value," Jia said.

The consolidation of Wuliangye and Brilliance, the domestic partner of BMW Corp, has opened the way for the former to roll out vehicles - a first for a wine producer. But, it is not the only example in the auto industry.........
It will be interested to see if this expansion helps the troubled Brilliance. It can definitely use the backing of a cash rich company like Wuliangye. And it would be a great opporunity to use some of that alcohol in the development of much-needed flex fuel vehicles.


[/QUOTE]
........Others including Yunnan-based Hongta Group, one of the largest state-owned tobacco producers, and Amoi Electronics Co Ltd also took similar steps..............
[/QUOTE]

as for the failed forays into autos by big companies:
I thought that FAW had purchased the failing Hongta in 97 and now is turning out light trucks (Fudi bodied) and Happy Envoys while having recently absorbed Guangzhou-based Baolong Specialty vehicles also under the FAW Honta name. Maybe someone knows the correct story about this. The Baolong subsidiary is said to be planning to turn out a new MPV called the Free Wind.

Also heard that Ningbo Bird Electronics may not be completely out of the game re: Nanjing's Soyat
 

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That's be a smart move if they can make cars that runs on alcohol (ethanol). :D
 
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