China's SAIC And Nanjing Auto to Cooperate, Favor Daimler-Chrysler Style Merger

"The negotiations concentrates on cooperation instead of acquisition", said one NAC official.

SHANGHAI - July 24, 2007: Sources from Shanghai Automotive Industry Corporation Group (SAIC) and Nanjing Automobile (Group) Corporation (NAC) said negotiations between the two parties are well underway and the initial framework agreement is expected to be signed within the next two weeks.

Nanjing's MG 7

Acquisition excluded A source from Nanjing Auto revealed that both parties have some general agreement but the specifics of the cooperation will not be released anytime soon. In addition, success of the cooperation also relies heavily on government's approval. According to analysts, the Chinese government has long encouraged consolidation in the auto sector in order to nurture manufacturers to compete in the global markets. A tie-up between SAIC and Nanjing Auto would suit that policy very well.

"We have been looking forward to cooperating with SAIC and we are even willing to make concessions on shareholdings, if necessary," said Wang Haoliang, chairman of Nanjing Auto, "but we will insist on certain issues, for example our revenue will remain with Nanjing."

Merger like Daimler-Chrysler is favored Nanjing Auto hopes the cooperation will result in a win-win situation. The Nanjing-based automaker hopes to merge based on the DaimlerChrysler model. In 1998, DaimlerChrysler paid almost $40 billion for Chrysler, but after the merger the two parties maintained their independence and kept their respective brands, while only sharing some technologies for mutual development.

But there are some risks involved in this model. This year, the industry saw DaimlerChrysler undo one of the most expensive and least successful mergers in the history of auto industry, after its money-losing Chrysler division repeated pulled down DC's overall financial performance.

Corporation between Nanjing Auto and SAIC is different from the DC merger in that the former couple is supported by the government while the latter subjected itself to market fluctuations.

MG and Rover may be re-united

SAIC's Rowe 750, based on the Rover 75

SAIC lost out to Nanjing Automobile in bidding for the bankrupt MG Rover in 2005. Instead, SAIC bought over the technology for two Rover models, the 25 and the 75. SAIC has since launched its own version of Rover 75, called Roewe. On the other hand, Nanjing Auto recently rolled out its version of the MG sports car, seeking to revive the historic brand.

The state-owned media has reported recently that Nanjing Auto is facing difficulties in financing its overseas expansion after the MG acquisition, which included a factory in Longbridge, in central England. Thus the merger is expected to give SAIC more funding support to enhance its production lineup, such as the introduction of the Nanjing Iveco, Nanjing Fiat brand, and help it realize the economies of scale.

According to insiders, the auto industry is still divided by regional rivalries, with new manufacturers still joining the fray. This created a scenario in which one company has what another company is looking for. For instance, large corporation such as SAIC has the means to launch its own vehicles in the global arena, but does not have a viable brand to market its products. On the other hand, a smaller company like Nanjing is owner to some of the more popular western brands, but it lacks the ability to export vehicles world-wide.

Given the circumstances, it seems that Nanjing and SAIC are putting their arguments aside -- and are moving closer towards a merger that will essentially reunite MG and "Rover" (Roewe) under the same corporate umbrella.

About Nanjing
The Nanjing Automobile (Group) Corporation (China's oldest car maker, founded in 1947) is a state-owned enterprise with 16,000 employees. The group has fixed assets amounting to RMB 12 billion and an annual production capacity of 200,000 vehicles. The group's major products are cars, trucks, and travel buses.

For more information about the burgeoning auto industry in China please visit http://www.gasgoo.com/Autobiz/list/7/China-News.html