Big-10 Plan to Gear up Car Makers

 The plan, which is part of a larger auto industry stimulus package announced earlier, seeks to create two to three powerhouse auto makers with annual sales and production capacity of 2 million units and another four to five car companies with the ability to sell 1 million vehicles every year, two officials from the China Association of Automobile Manufacturers told Shanghai Daily yesterday.

None of China's car companies meets the top criterion now. The one that comes closest is Shanghai Automotive Industry Corp, which sold around 1.8 million vehicles last year.

The government also wants to increase the market share of Chinese-brand passenger vehicles to 40 percent from the current 34 percent, the sources added.

Backed by the merger plan and other measures contained in the stimulus package unveiled in mid-January, the government hopes domestic car makers will sell at least 10 million vehicles this year and maintain annual sales growth of 10 percent over the next three years, the sources said.

Last year, the country's vehicle sales rose 6.7 percent to 9.38 million, the slowest pace since 2000 as the global economic downturn reduced consumer purchasing power and curtailed exports.

The merger push will have the greatest effect on China's top 10 car makers, a group that accounted for 83 percent of total sales last year and includes state-owned firms such as SAIC, FAW Group Co and Dongfeng Motor Corp and privately owned Geely.

Some consolidation is already under way. The Beijing Automotive Industry Group, the nation's fifth-biggest car maker, is in discussions to take over Fujian Automotive Group in south China to expand production.

Guangzhou Auto, the Chinese partner of Toyota and Honda, is pursuing the sport utility vehicle specialist Changfeng Automobile Co.

    No quick fix

Analysts warned, however, that an immediate surge in industry mergers is not likely despite the government encouragement.

"Mergers and acquisitions still depend on the goals of individual car makers," said Zhang Xin, an auto analyst at Guotai Jun'an Securities Co.

"It could become complicated if it involves conflicts among local governments" that are reluctant to lose a source of taxation.

The detailed measures have been sent to local governments for their review.

Under the larger stimulus plan, the government is setting up a 10-billion-yuan (US$1.46 billion) fund to help car makers develop new-energy vehicles.

It is offering 5 billion yuan in subsidies to support vehicle purchases in rural areas starting on March 1.

And the sales tax on vehicles with smaller engines is being cut in half to 5 percent.

                                                                             Source: Shanghai Daily