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Last summer, I talked to you about Mazda's development history in China (read "The merger of Mazda in the north and south is imminent, FAW Mazda is an empty shell"), and a series of news from Kia recently showed that Dongfeng Group has officially transferred its 25% equity project in Dongfeng Yueda Kia to Jiangsu Yancheng Yueda Group and South Korea's Kia, and Dongfeng Yueda Kia will also change from a tripartite joint venture to a joint venture between Yueda and Kia.
01
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Why did Dongfeng withdraw?
The ostensible reason for Dongfeng's exit is that the performance of Dongfeng Yueda Kia (hereinafter referred to as the company) has been declining in recent years:
From the perspective of sales, the company has declined for five consecutive years, and after reaching a record high of 650,000 units in 2016, it has fallen to 160,000 units in 2021 (according to dongfeng group production and sales express).
From the perspective of profit, the company's net loss in 2020 was 4.75 billion yuan, and the company's net loss from January to October 2021 was 2.612 billion yuan. Due to the company's consecutive years of losses, although Dongfeng Group occupies 25% of the shares, it not only does not share the profit every year, but also accompanies the other two shareholders to share the loss, which is really not a cost-effective business.
However, in my opinion, the deep-seated reason for Dongfeng's withdrawal is not the decline in the company's performance in recent years, but the continuous changes in the national automobile industry policy in the past two decades. To talk about why Dongfeng withdrew, we must first talk about why Dongfeng joined that year.
02
Why did Dongfeng join?
The establishment of Dongfeng Yueda Kia is the product of the policy of that year, and it is a helpless move for private enterprises and foreign-funded enterprises to be trapped in China's automobile industry policy at that time.
In 2001, in order to obtain the 7-character car production catalog strictly controlled by the state, Yueda Kia had no choice but to introduce the state-owned Dongfeng Group and establish Dongfeng Yueda Kia Automobile Co., Ltd., of which Dongfeng Group, Yancheng Yueda Group and South Korea Kia accounted for 25%:25%:50% of the shares respectively.
However, as with the previous strategy of Dongfeng's stake in a number of car companies, from the first day of Dongfeng's stake in Yueda Kia, it is the role of a financial investor, the main purpose is to provide a car catalog for Yueda Kia, and not to be too involved in the daily operation of Yueda Kia.
At that time, private enterprises and local state-owned enterprises generally committed themselves to central enterprises in order to obtain scarce resources such as car production catalogs. In addition to Dongfeng's stake in Yueda Kia, FAW has invested in Haima, FAW has invested in Yizhong Automobile, SAIC has invested in Chery, Dongfeng has invested in Xiaokang, and GAC has invested in Gio.
Most people think that this is the starting point of Kia's entry into China, in fact, Kia entered China much earlier than everyone thinks. Although Kia is a rising star of Korean cars, in China, Kia predates South Korean compatriots Hyundai, Daewoo and Ssangyong.
03
A Review of Kia's History in China (1980s-1998)
As early as the eve of the 1988 Beijing Asian Games, South Korea's Kia donated hundreds of Kia Prime units to Beijing for conference services, which was also the first product after the establishment of Dongfeng Yueda Kia.
Kia Prime front view
Kia Prime rear view
In addition, in the 1990s, at least 3 local car companies, large and small, introduced Kia's products, and invariably looked at the Pride car, they were:
1. Jiangmen New Club:
Xinhui Agricultural Machinery Factory, the largest walking tractor production base in South China, established Guangdong Xinhui Automobile Factory in 1993. After negotiating with a number of foreign car companies, it was finally decided to introduce the Pride model of Kia Company of South Korea, which was produced by CKD full-part assembly. The name "Xinhui Pride", a paraphrase from Pride in English, is said to have sold well throughout Guangdong that year.
Xinhui Pride (Source: WeChat public account "Xuanliang KapoTu District")
2. Shaoguan Guangtong:
Shaoguan Guangtong Automobile Factory, which was born from the Guangdong Mining General Machinery Factory, also happened to look at the Pride model of South Korea's Kia Company in the early 1990s, and also used the CKD all-part assembly method to launch a hatchback based on The Pride. Since Guangtong Automobile Factory only has the production qualification of 5-head special vehicles for the production of mining vehicles, the model code of Guangtong version of Pride is GTQ5010X, of which the 5-head represents special vehicles, which shows that the automobile factory at that time had what qualifications to use.
Background:
The National Development and Reform Commission strictly controls the production qualification of automobiles, especially the production qualification of cars, and the first digit of the four digits of the model code represents the type of vehicle, that is, the category of vehicles allowed to be produced by enterprises: 1 is a cargo car, 2 is an off-road car, 3 is a dump car, 4 is a traction car, 5 is a special car, 6 is a bus, 7 is a car, 8 is a blank spare, and 9 is a trailer.
At that time, most of the models introduced were MPV, SUV or hatchback cars, because the production qualification of the 7-headed car was strictly controlled by the state, and the MPV, SUV or hatchback could hang the 6-head bus production qualification and play the policy edge ball.
3. Yancheng Yueda:
That is, the predecessor of the protagonist of this article. Yancheng Yueda Group is the largest private enterprise in northern Jiangsu, after the merger of Yancheng Automobile General Factory in the 1990s, it also looked at the Pride model of South Korea's Kia Company, and introduced a full set of stamping, welding, painting and assembly production lines from South Korea Kia, and began to mass-produce Pride hatchback and sedan models in 1998, named "Yueda KiaPlett", which is transliterated from Pride in English. Since Yueda Kia only had the qualification to produce buses, the model codes of Prett at that time were YQZ6390 (sedan) and YQZ6370 (hatchback), of which the 6-character head represented the bus.
Yueda Kia Pratt (note that the tail mark at that time was not "Dongfeng Yueda Kia")
Seeing this, everyone may be curious to ask: Why do three domestic automobile factories look at Pratt at the same time?
04
Forced Interlude: Not Simple Kia Pratt
Although Pratt was imported from Kia in South Korea, this car was not developed by Kia itself, but by Japanese Mazda, which was much stronger than it. Why is the model developed by Japan's Mazda produced in Kia, South Korea?
Kia Pratt's prototype: Mazda 121
The reason is that in the 1980s, Both Japan's Mazda and South Korea's Kia were ford's shareholding companies. Because of the equity relationship between the three, almost all of Kia's models between 1986 and 1998 were taken directly from fords in the United States or Mazda in Japan. In addition to the Above-mentioned Pratt, the Kia Kahua of that year was actually the replacement car of Ford Wenda, and the Kia Endeavour was the standard replacement car of the Mazda 929.
Kia Jawa
Ford Steady
Kia Forge Ahead
Mazda 929
Not only has the Pratt achieved great success in South Korea, becoming Kia's best-selling model ever, but it has also been sold in the United States, Japan, Australia under the ford Festiva name, and even produced by Ford Rokuwa in Taiwan.
Pratt on the streets of America (hanging the Ford Festiva logo)
Pratt on the streets of Japan (hanging the Ford Festiva logo)
Pratt on the streets of Taipei (assembled by Ford Rokuwa Company, hung Ford Festiva logo)
To the United States alone, Kia exported more than 350,000 Pratts. But Pratt's most successful country is not the United States, but Iran, a rival country of the United States. Iran's SAIPA company began to assemble Kia Pratt in 1993, becoming the preferred model for Private Cars and Taxis in Iran, just like the Iranian national car, Pratt still accounts for about 40% of Iran's national car ownership. After the Iranian SAIPA company completed the localization of Pratt parts, it even exported them to the Arab American Vehicles in Egypt, the Venirauto Automobile Company in Venezuela, and the SAIPA Iraq Company, and assembled the SAIPA version of The Pratt locally.
Iranian National Car: SAIPA Pratt
In fact, when The Pratt was introduced by Yueda Group, it had sold nearly 2 million units abroad, making it an extremely successful model. In my opinion, there are the following reasons for this success:
1, high reliability: because Kia strictly in accordance with the Japanese Mazda process production, and the Pratt structure is simple, so the Pratt reliability is very impressive. After this car was introduced into china by Yueda, Yueda has adopted very high standards in terms of parts fixed point, quality control and production process, starting from the first batch of Yueda Pratt, it has established a very good reputation, and the quality is not only higher than that of Tianjin Xiali, Changan Alto, Geely Haoqing, Guihang Yunque, and even higher than the higher price of Shanghai Volkswagen Santana, FAW-Volkswagen Jetta, Guangzhou Peugeot 505. I still vividly remember that around 2002, a Driver of a CapeLight taxi in his hometown praised the quality of the 500,000-kilometer trouble-free Pratt. In addition, a comment on Zhihu seems to illustrate some problems:
I know a past memory of the respondent "Deng is thinner"
2, super high cost performance: at that time, the hatchback manual gear of this car started at 60,000, the top of the sedan automatic gear 90,000, the whole series is equipped with a 1.4-liter engine. In the same period, other models of about 60,000 yuan have engine displacements of no more than 1 liter, such as Changan Alto is 0.8 liters, Tianjin Xiali is 1 liter, and Guihang Skylark is 0.66 liters. In the same period, models below 100,000 yuan, without automatic transmission, Yueda Kia Pratt is the cheapest automatic model that can be bought in Chinese mainland that year.
Price list of Prett (Source: First Car Network)
3, Kia open cooperation attitude: Kia has always been good at exploring emerging markets, in the 1990s in addition to for Ford, Mazda OEM Pratt, but also transferred the technology of this car to several companies including Jiangmen Xinhui, Shaoguan Guangtong, Yancheng Yueda, Iran SAIPA, Philippines Columbian Autocar Corporation and so on. Until now, Kia's expansion into the U.S., India, Southeast Asia, and Latin America markets has been extremely successful.
Kia will sell 700,000 units in the U.S., the world's second-largest automotive market, in 2021, ranking 8th
Kia sold 180,000 units in India, the world's fourth largest automotive market, in 2021, ranking 5th (Source: Suzuki FANS WeChat public account)
05
A Review of Kia's History in China (1999~Present)
Although the product power of The Pratt, the first model of Yueda Kia, was very strong, it did not catch fire, because in 1999, two major events happened:
The first major event is to crack down on smuggled vehicles and illegal assembly vehicles nationwide, starting from the 1999 Xiamen Yuanhua case. CKD assembly projects that play policy edge balls across the country have been forced to stop production overnight, and the affected enterprises include jiangmen xinhui and Shaoguan Guangtong mentioned above, in addition to Zhanjiang Samsung, Guangzhou clouded leopard, Jiangxi Fuqi... Fortunately, because Yueda Kia has a complete stamping, welding, painting, and final assembly process, and the parts have reached a certain proportion of localization, it has not been judged as an illegal assembly car project.
Zhanjiang Samsung, which was judged to be an illegal assembly car factory, was the main assembly force of the Mitsubishi Pajero V31 that year
Guangzhou Cloud leopard, which was judged to be an illegal assembly car factory, assembled the Nissan Tule Y60 with a high reputation among off-road players
Jiangxi Fuqi, which was judged to be an illegal assembly car factory, assembled the Toyota LC80-4500 for up to 485,000 yuan
The second major event was abroad, the Asian financial crisis that broke out in the summer of 1998 quickly spread to South Korea, and Kia Motors also fell into operational difficulties, and in 1999, it was absorbed and merged by Hyundai Motor, which operates steadily, and established the Hyundai-Kia Automobile Group, so the foreign company that cooperated with Yueda changed. Whether the new group is willing to continue to cooperate with the Yueda Group in China was uncertain at first, and the Yueda Group had no bottom in mind.
Hyundai-Kia Group's China headquarters in Beijing
Fortunately, Zheng Mengjiu, chairman of Hyundai Motor, was originally very optimistic about the Chinese market and always wanted to find an opportunity to enter, but he did not expect to acquire Kia Motors and realize his Chinese dream by the way. Zheng Mengjiu himself even made a special trip to the Yueda Kia factory in Yancheng, Jiangsu Province, after acquiring Kia Motors. In 1999, Jiangsu Yueda Kia Automobile Co., Ltd. was registered and established, with Yueda Investment holding 70% of the shares and Kia Group holding 30% of the shares.
After the two major uncertainties at home and abroad gradually became clear, Yueda Group and Hyundai Kia Group expanded their joint venture cooperation, and in January 2000, the shareholding ratio of Jiangsu Yueda Kia Automobile Co., Ltd. was adjusted to 50%, 30% of Kia and 20% of Hyundai. Since 2000, Yueda Kia has been laying sales channels and advertising nationwide. I still vividly remember that in the December 2000 issue of Friends of the Automobile magazine, a detailed introduction to Yueda Kia Pratt was given.
Although Yueda Kia vigorously develops channels and puts advertisements, but The Pratt still does not achieve the expected sales, one of the important reasons is that Yueda Kia only has bus production qualifications, and the driving license of The Pratt is a bus starting with 6 words, so the annual inspection frequency, the amount of vehicle and vessel tax, the restriction area and other conditions of use are not the same as the cars that start with the 7 words of the license.
In order to develop in the future for a long time, under the guidance of high people, Yueda Group found a central enterprise with sound production qualifications, Dongfeng Group, on November 27, 2001, Dongfeng, Yueda, Kia signed a cooperation agreement in Beijing, yueda Kia introduced Dongfeng as a shareholder.
Dongfeng Yueda Kia was born, and Kia has since had a 7-figure car production qualification in China. Kia began to make full efforts in China!
After Dongfeng took a stake, The tail mark of Prett also became "Dongfeng Yueda Kia"
First of all, during the 2002 FIFA World Cup, Kia Motors placed intensive advertising before each game of CCTV's five sets. I still vividly remember the screen of the TV advertisement at that time was Kia Jawa, and the slogan was "Kia Cars, five-star safety standards".
In addition, Kia's new car launch rate is amazing, since 2002, at an average annual rate of one car: Maxima, Yuanjian, Jawa, Cerato, Lionscar, Rio, Shull, Freddy, Zhipao, K5, K2...
From 2002 to 2016, Kia's annual sales in China soared from 20,000 to 650,000, an increase of more than 30 times! The capacity of the first plant of 140,000 yuan has long been insufficient, so the second plant with a capacity of 300,000 yuan in 2005 began construction, and the third plant with a production capacity of 450,000 yuan in 2012 began construction, with a total production capacity of 890,000 units.
Just as Kia was happily sprinting for 1 million annual sales, an accidental event changed the fate of Kia's history in China: the THAAD incident in 2017. The incident not only led to the withdrawal of Lotte Group from China, the suspension of the introduction of Korean dramas, and the suspension of travel to Korea, but also led to a major decline in sales of Korean cars in China, which directly reduced Kia's sales in China from 650,000 units in the previous year to 360,000 units in 2017, and to 160,000 units in 2021.
In the front, there is a challenge of independent brand fuel vehicles with higher cost performance, and after the electrification sniper of new car-making forces, Kia seems to have become thinner and thinner in China. Will Kia follow the footsteps of Fiat, Suzuki, Renault and Yulon to withdraw from the Chinese market?
Kia's outlook in China
Personally, I believe that Kia will never withdraw from China in the short or medium term for the following reasons:
1, China is the world's largest automotive market, and is one of the few potential markets. The United States has 840 cars per 1,000, Japan 620, South Korea 450, Russia 380, Brazil 350, and China has only 180. In the long run, China's auto market still has a lot of room for growth, with the continuous improvement of road and parking lot construction, the future growth to brazil's 350 units (doubled) level should be no problem. Kia will not remain indifferent to China's potential market.
2. Although The sales volume of Kia in China fell to 160,000 units in 2021, China is still its fifth largest market in the world, second only to 700,000 units in the United States, 540,000 units in South Korea, 200,000 units in Russia, and 180,000 units in India in 2021.
3, Dongfeng withdrew from Dongfeng Yueda Kia, not because it was judged that the company was going to be yellow. In the past few years, Dongfeng has withdrawn from Dongfeng Yulon and Dongfeng Renault, gradually withdrawn from relatively weak joint ventures, and focused more funds and management energy on its own brands, which has become the strategy of Dongfeng Group in recent years. Compared with the joint venture company, Lantu, Fengshen and Dongfeng New Energy are the sons of Dongfeng Group.
4, Kia's sales in China have declined year by year, the main reason is not necessarily that the cost performance has been overtaken by independent brands, and the electrification has been hit by the new forces of car manufacturing, which is likely to be a political factor. Because Kia Motors is still growing outside the Chinese mainland, it shows that Kia Motors' product strength is no problem, and Kia's electric vehicle sales in Europe even exceed many established electric vehicle players, such as Nissan Leaf.
2021 Kia electric vehicle ranked 6th in Europe (Source: 1st Electric)
In fact, political factors are an important factor in whether a car brand sells well or not, taking the Japanese car after the 2012 anti-Japanese parade as an example, even if the product strength is good, the cost performance is high, and the reliability is strong, if for some reason in government procurement, taxi and other large customer procurement, scarce advertising time and other resources can not be treated fairly, it is difficult to sell well.
After Dongfeng withdrew, there were still two major problems in front of Yueda Kia:
1. First, the capacity utilization rate is too low, and a large number of production capacity is idle, resulting in a large number of fixed asset depreciation can not be reasonably amortized, and the cost of bicycles is increased without reason. At present, yueda kia's three plants in Yancheng have an annual production capacity of 140,000, 300,000 and 450,000 vehicles respectively, totaling 890,000. In order to optimize production capacity, the oldest (most technologically backward) first plant has been leased by Huaren Express (Gaohe Automobile) for a long time. Even so, according to the total production capacity of the second and third factories of 750,000, Kia's sales volume in China in 2021 is 160,000, and the capacity utilization rate is only 21%, far below the industry average.
2, less Dongfeng, the central enterprise town building, the other two shareholders Yueda and Kia, may be on the stock ratio. As early as 2018, the National Development and Reform Commission issued a document deciding to cancel the foreign ownership restrictions on special vehicles and new energy vehicles in 2018; cancel the foreign ownership restrictions on commercial vehicles in 2020; and cancel the foreign ownership restrictions on passenger cars in 2022, and at the same time cancel the restrictions on no more than two joint ventures.] Through a five-year transition period, the automotive industry will have all access restrictions removed. With the sword of "abolishing the foreign ownership limit for passenger cars in 2022", Kia may not be satisfied with a 50% share ratio, and may require a 75% controlling share ratio, or even 100% sole proprietorship.
Kia asked for sole proprietorship, and Yueda is not unable to agree, because Yueda has built perfect parts supporting, vehicle transportation, vehicle testing ground and other supporting projects for Dongfeng Yueda Kia for many years, which has been deeply embedded in Kia's ecological chain in China, and Kia cannot break away from Yueda's system overnight. If we can arrange the transfer pricing of Yueda as a supplier to Kia when providing parts and trade services, so that Yueda still has a piece of the pie after the withdrawal, I think Yueda may also agree to Kia's sole proprietorship.
Looking at the past two decades, Mercedes-Benz, Volkswagen, and Japanese have all experienced a trough rebound in China, and Kia may usher in the second spring in China in the future.
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This article was first published on January 23, 2022 @ Shanghai, China
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