Analysts and officials discredit speculation about possible merger, market reacts positively

Xu Ping, 60, and Xu Liuping, 53, exchanged jobs last week. Altogether leading more than 200,000 workers, the sudden reshuffle of these two big names in China's car industry is as surprising as it is thought-provoking.

On August 2, Xu Ping, who joined FAW Group Corporation as its chairman in May 2015, was appointed by the central government as head of China South Industries Group Corporation, parent company of Changan Automobile Group.

On the same day, Xu Liuping, president of China South Industries Group Corporation and chairman of Changan, was announced as FAW chairman.

Changan sold 1.43 million cars in the first half of the year, ranking fourth among all car groups in China. It came after FAW, which ranked third by selling 1.6 million cars in the same period.

Despite the fact that his new employer sold fewer than his old one, Xu Ping might have heaved a sigh of relief.

That is because a closer look at the two's sales shows that Changan's self-developed cars accounted for some 45 percent of its total.

The percentage at FAW was a meager 7 percent. Self-developed cars have been one critical index to assess the work of State-owned carmakers' heads, and the poor performance of FAW's self-developed cars, especially its premium marque Hongqi, has been speculated as one reason for Xu Ping's job changes.

Some argued that he was not given enough time, saying he had brought some changes to the problem-ridden FAW in the past two years, including elevating FAW Car's Hongqi department into a FAW subsidiary late last year.

About a month before Xu Ping's transfer to Changan, Li Jun, FAW's deputy chief engineer, told the China Automotive News newspaper that the Hongqi brand is to rise soon, saying eight models ranging from sedans, SUVs and MPVs would hit the market around 2019.

It seems that whether Li's words would become a reality matters little to Xu Ping now, as Xu Liuping has already taken the helm of FAW.

The capital market was the first to give him a warm welcome.

When word spread on Aug 1 that he would take the job, the shares of FAW Car surged to their daily limit, while those of FAW Xiali rose 6 percent.

An Qingheng, a veteran of China's auto industry and the former chairman of BAIC Group, told the 21st Century Business Herald that what FAW needs is not money or technology but a young leader like Xu Liuping to push through reforms.

Some other industry insiders believe it is no easy task.

Wang Binggang, a senior expert on China's national new energy car program, said he is worried about Xu Liuping.

He admits that an excellent leader may help to reinvigorate a company but said Xu Liuping should be mentally prepared for FAW's habitual resistance to reform.

It is widely agreed that several factors, including its sheer size and hangovers from corruption, has sapped its vigor.

Wang said: "The conventional way of work may not produce results soon, which would get people discouraged, but unconventional measures are risky themselves. And who will empower him to act differently?"

Compared with the prospect of Xu Liuping's work, Xu Ping's job at Changan might be a little bit easier, but it also will require plenty of effort.

Despite its relatively balanced sales proportions, public statistics show that last year, Changan's self-developed cars contributed 660 million yuan ($98.21 million) in profit, accounting for 6.4 percent of its total. That means Changan has a long way to go before it can rely on its self-developed cars, said Sun Yong, a car reporter-turned analyst.

The self-developed cars' profit is expected to fall as Changan cut prices to maintain its sales earlier this year, and what makes things worse is that the revenue of its joint venture Changan Ford dropped to 49.4 billion yuan in the first half of this year, down 14 percent from a year earlier.

A harbinger of merger?

The management reshuffle is seen by some as a harbinger of merger because of past calls for merger and consolidation.

One of the most recent is a guideline the Ministry of Industry and Information Technology issued in 2013, calling for the auto industry to cultivate three to five large auto groups with core competitive strengths by 2015.

But analysts said there is little chance of an FAW merger with Changan because such a merger would not solve the existing problems.

The Economic Observer newspaper quoted an anonymous official at the State-owned Assets Supervision and Administration Commission of the State Council on Aug 2 as saying the job changes had nothing to do with any merger.

The commission supervises central-owned enterprises including FAW and Changan Automobile's parent company China South Industries Group Corporation.

There were rumors of a possible merger in 2015, when Xu Ping moved from Dongfeng Motor Corporation to work as FAW chairman while Zhu Yanfeng, former head of FAW, was appointed to head Dongfeng. But nothing has happened so far.

lifusheng@chinadaily.com.cn

(China Daily 08/07/2017 page18)