Text: Haoran Zhang, Zhu Yun
ID：BMR2004
On March 7, GAC Motor Group (601238. SH) announced the February 2022 production and sales express, in a number of rising report cards, GAC FCA production and sales are particularly "dazzling", through the data can be seen that GAC FCA production in February is only 35 vehicles, a month-on-year decline of 95.83%; and sales are only 134 vehicles, in the GAC Group under many brands in the bottom, a monthly decline of 94.64%.
Not only is sales plummeting, GAC FCA is also facing equity restructuring.
With the liberalization of the joint venture stock ratio structure of passenger cars, the joint venture brands in the automobile circle seem to see a new development possibility, breaking the 50:50 confrontation situation, and the joint venture brand looks at who is related to its future development.
On January 27, 2022, Stellantis Group issued a statement on its official website saying that it plans to increase its shareholding in ITS joint venture with GAC Group from 50% to 75%, and that GAC Group and Stellantis have agreed to the relevant procedures for the transaction, but still subject to regulatory approval.
Source: Stellantis Group official website
However, just after the Stellantis Group issued a statement, GAC Group responded in the announcement: "GAC Group learned from the official website of Stellantis about its release on the equity adjustment of GAC FCA, which was not approved by us, and GAC Group deeply regrets it." The two sides have not yet signed a formal agreement on the equity adjustment of GAC FCA. Regarding foreign joint venture cooperation, GAC Group will strictly abide by national policies and regulations and promote it in accordance with the principles of mutual trust and win-win results. ”
Source: GAC Group's official website
Source: Juchao Information Network
Regarding the progress of stellantis group and GAC group on equity adjustment matters and the strategic layout of GAC FCA in the future, the reporter of the "Business School" sent interview letters to GAC Group, Stellantis Group and GAC FCA respectively. On March 1, stellantis Group unveiled a strategic plan called "Dare Forward 2030". In this strategy, Stellantis Group said it will plan an asset-light business model in the Chinese market to reduce fixed costs and achieve net revenues of 20 billion euros by 2030.
The reporter noted that stellantis group in the official strategic plan, did not clearly mention the future equity adjustment and strategic planning of GAC FCA, the reporter further verified to stellantis group, until the press release has not received a reply.
Although THE GAC Group issued a statement saying that the equity adjustment has not yet signed a formal agreement, it has not denied the equity adjustment, so is the dilemma of GAC FCA about to become the "abandoned son" of THE GAC Group? Can GAC FCA take advantage of the equity adjustment to usher in a turnaround, and will the equity adjustment be a good move? After the adjustment of the equity structure, how does GAC FCA, which has lost nearly 6 billion yuan in consecutive years, explore the road to self-help?
Production and sales have returned to a new low, precarious?
Zeng Qinghong, chairman of GAC Group, once said that GAC FCA must speed up the pace of product updates and improve product quality. He pointed out that GAC FCA needs to have a full sense of crisis, and the key to long-term competition in the Chinese market lies in deepening localization research.
According to the information on the official website of GAC FCA, GAC FCA is headquartered in Changsha National Economic and Technological Development Zone, Hunan Province, with a vehicle production capacity of 164,000 units, an engine production capacity of 488,000 units, and nearly 2,000 employees. According to the current monthly production of 35 vehicles, gac FCA's capacity utilization rate is less than 1%.
So, what is the current production capacity operation of GAC FCA? What is the employee's working status? In the face of this decline in sales and low capacity utilization, how does GAC FCA respond? For these questions, the "Business School" reporter asked GAC FCA, as of press time, the other party has not replied.
Source: GAC FCA official website
In fact, starting from 2021, GAC Group plans to transfer 20% of its shares in GAC FCA to its joint venture partner, Stellantis Group, as part of the plan, GAC FCA Guangzhou plant will stop production, and in the future, GAC FCA will transfer all production tasks to changsha plant.
In 2021, GAC FCA will produce only 16,300 units, with a capacity utilization rate of only 9.95%, and more than 470,000 vehicles will be idle.
Zhang Xiang, a researcher at the Automobile Industry Innovation Research Center of North China University of Technology, said frankly that the current production and sales situation of GAC FCA is indeed precarious.
Talking about the reasons for low production and sales, Zhang Xiang said that first of all, GAC FCA's products are outdated. On the one hand, in the past, Fiat's car products are aging and have not been upgraded; on the other hand, Fiat's own idea is to directly take european cars to China, and directly sell them after localization, but European cars are not satisfied with China's water and soil, Chinese consumers relatively prefer cars with relatively large space, European people like relatively small cars, parking is very convenient, so there is no localization adaptation work.
Secondly, now Chinese living habits are also changing, many jeeps are a professional off-road vehicle, is a tool for long-distance self-driving travel, but now in society, the pace of everyone's life is getting faster and faster, and there are fewer owners who go on self-driving trips, so the market is lost. Third, new car-making forces such as ideal and Nippon cars, including the Great Wall tanks, are built according to the needs of young consumers, using the latest platforms and technologies, and their cost performance is higher than that of jeeps. As an old brand, the jeep can see that its shape has not changed in the past decade, which is actually a model liked by "post-60s" and "post-70s" old owners, but now the main consumer is young people. Finally, GAC FCA in China's new energy transformation is also very slow, now it launched the model or plug-in model, this model and other domestic similar products compared to the price is relatively high, there is no pure electric model, for GAC FCA production of this large displacement of the car, its negative integral is also very high, because it costs money to buy new energy points to offset, so the cost in this regard is also very high. These reasons have led to the current precarious situation of GAC FCA.
For how GAC FCA will reverse such a production and sales situation next, Zhang Xiang analyzed that after gac FCA's sales have become less, there is no way to recover costs and make profits by continuing to produce domestically, because cars are products with economies of scale, and future operations are not bad, and jeeps may have to withdraw from the Chinese market.
Zhang Xiang further pointed out: "GAC FCA is still facing the Chinese market to build a new new energy vehicle platform to meet the needs of the Chinese market, of course, this investment is very large, because to create a new platform, the entire production line must be replaced, the investment is very large, but it must take this step, otherwise it cannot stand in the Chinese market." The Chinese market is fiercely competitive, and some local brands are rising, like great wall tanks, including BAIC's domestic off-road vehicles, Dongfeng's off-road vehicles, in fact, have launched a fierce attack on GAC FCA's jeeps, so FCA must introduce new products, invest, and face the needs of Chinese consumers to develop local truly localized products in order to reverse the current production and marketing situation. ”
Equity is likely to change
Stellantis Group took the lead in announcing the adjustment of the equity structure of GAC FCA, although the formal equity transfer agreement has not yet been signed, but according to the content of the announcement, the future GAC FCA will move closer to stellantis Group, and GAC Group will also reduce its shares.
As early as September 2021, it was reported that GAC Group planned to transfer 20% of the shares of GAC Fiat Chrysler Automobile Co., Ltd. (hereinafter referred to as GAC FCA) to the joint venture partner Stellantis Group.
Stellantis Group is a 50:50 share ratio of automakers and mobility solutions from the Combined French Peugeot Citroën Group (PSA Group) and Fiat Chrysler Group (FCA Group). On January 16, 2021, PSA Group issued a document that the merger transaction between PSA Group and Fiat Chrysler Automobiles (FCA) was completed, thus merging the two parties into a new group, the Stallantis Group.
The FCA Group was formed by the merger of fiat and chrysler. Fiat and Chrysler are two car companies that have a pivotal position in the history of the world's automobile, but they are ill-fated, and on October 12, 2014, the two companies officially merged to form Fiat Chrysler Automobiles.
As early as a few years after the merger, Fiat showed great interest in Chrysler, which had just "broken up" with the Daimler Group, and was on the verge of bankruptcy due to the negative impact of the financial crisis. Fiat Group saw the timing and decided to acquire Chrysler to restore its former glory and take the opportunity to re-enter the Fiat brand into the US market. Since 2009, Fiat has signed an alliance agreement with Chrysler and began to gradually acquire Chrysler shares, Fiat holds 20% of Chrysler's shares, since then it has increased to 35% in three installments, and in 2011 Fiat has held 52% of Chrysler's shares, with absolute control over Chrysler. In 2011, Fiat already owned 52% of Chrysler and had absolute control of Chrysler. However, due to financial problems, merger plans slowed after 2012, and the Italian government provided financial support to Fiat just as it was stretched.
The Jeep brand, which is well known in China, was once sold in China in the form of imports, and the main operating body was Chrysler (China) Automobile Sales Co., Ltd., which was responsible for the import sales, marketing and after-sales business of Chrysler's Chrysler, Jeep and Dodge brands in China. It was not until 2014 that Chrysler was acquired by the Italian car company Fiat to form Fiat Chrysler Automobiles (FCA). Through the restructuring of FCA, Chrysler was introduced into the domestic joint venture GAC Fiat, and in 2015 it was renamed GAC FCA, and the Jeep brand was once again produced in China, and Free Light quickly rolled off the production line and went public.
Today, Stellantis Group took the lead in announcing the announcement of the adjustment of GAC FCA's equity structure, although the formal equity transfer agreement has not yet been signed, but according to the content of the announcement, the future GAC FCA will move closer to Stellantis Group, and GAC Group will also reduce its shares.
According to the announcement issued by GAC Group, due to the great difficulties in the operation of GAC FCA in recent years, the shareholders of the two sides of the joint venture have conducted in-depth communication and consultation on their joint venture and cooperation and the revitalization plan of GAC FCA. If the equity adjustment is approved, the shareholding ratio of GAC Group and Stellantis Group in GAC FCA will change from the original 50:50 to 25:75.
Dim "Free Light"
From an internal point of view, GAC FCA reached the peak of sales with the help of the domestic SUV market boom, but it fell rapidly due to product quality and service cannot keep up with the development situation of the enterprise; the external reason is that the SUV dividend period has passed, while GAC FCA has not seized the opportunity and is gradually marginalized.
In fact, the crisis of GAC FCA has a long history, as GAC Group pointed out in the announcement that in recent years, GAC FCA has had greater difficulties in operation. Focusing on the sales data of GAC FCA in recent years, it can be seen that in 2018, GAC FCA sold 125,200 vehicles a year, down 38.99% year-on-year, and in the same year, Jeep's products were exposed to large-scale burning oil, lying down and other issues, and the product quality made GAC FCA constantly questioned; In 2019, GAC FCA sales continued to decline by 40.96% to 73,900 units; In 2020, GAC FCA sold only 40,500 vehicles, down 45.18% year-on-year; In 2021, GAC FCA produced and sold 16,300 units and 20,100 units, respectively, down 57.78% and 50.33% year-on-year, with an average monthly sales of less than 2,000 units.
Source: "Business School" is based on the statistics of GAC Group's production and marketing express
GAC FCA was established on March 9, 2010, by the GAC Group and Stellantis Group in a 50:50 share ratio of joint investment and construction, with a total investment of about 17 billion yuan, the company is headquartered in Changsha National Economic and Technological Development Zone, Hunan Province, with Two Vehicle Plants in Changsha Plant and Guangzhou Plant, with an overall design capacity of 328,000 vehicles.
GAC FCA's current models on sale include the New Grand Commander, Free Light, New Guide, Liberty Man, Wrangler, Grand Cherokee and so on.
GAC FCA has also been brilliant, "not all SUVs are called Jeep", such a positioning has brought GAC FCA about 200,000 annual sales report card. In 2015, the Jeep brand achieved domestic production in China, and then successively launched three domestic models of Jeep Free Light, Free Hero and Guide, the first model Jeep Free Light was once loved by consumers, in December 2015, Jeep Free Light sales were 5836 vehicles, in 2016 GAC FCA cumulative sales of 146,400 vehicles, an increase of 270.84%; in 2017 sales reached 205,200 vehicles, an increase of 40.11%.
However, the good times are not long, and the sales of GAC FCA have declined year by year since 2018, as shown in the above statistical chart, the production and sales of GAC FCA have both declined. According to the latest production and sales express data of GAC Group, the production and sales of GAC FCA in January 2022 were 785 and 1725 units, down 72.01% and 31.06% year-on-year, respectively. In the case of the growth of production and sales of other brands of GAC Group, the achievements of GAC FCA are particularly dazzling.
Recently, the "Business School" reporter visited a GAC FCA dealership store in Beijing, and what came into view was GAC FCA's Slogan "Not all SUVs are called Jeep". Just after the New Year, the store's showroom is full of atmosphere for the Year of the Tiger, with a total of four exhibition cars in the store, namely Jeep New Grand Commander, Jeep Free light, Jeep Grand Cherokee and Jeep Wrangler, and there are few customers in the store.
The dealer store marketing department staff told reporters that the total sales of each month in 2021 are between 60-70 vehicles, gac and FCA sales in the past two years have indeed declined, and the overall sales volume in 2021 is about 20% to 30% compared with last year. Wrangler is also the main model, consumers are mainly young users of male groups, the user level is relatively narrow. Talking about the reasons for the decline in sales of GAC FCA, it said that on the one hand, the GAC FCA brand itself is relatively niche, on the other hand, the competitive pressure brought by products of the same level and other dealer stores is also larger.
GAC FCA 4S in-store exhibition car Photo: Zhang Haoran, reporter of "Business School"
Once GAC FCA can sell more than 200,000 vehicles a year, but now it is so bleak, from the perspective of internal factors and external factors, what is the reason for the plummeting sales of GAC FCA?
Ren Wanfu said that internally, GAC FCA reached the peak of sales with the help of the domestic SUV market boom, but it fell rapidly because of product quality and service can not keep up with the development situation of the company; the external reason is that the SUV dividend period has passed (the SUV dividend period is mainly between 2011 and 2018), while GAC FCA has not seized the opportunity and is gradually marginalized.
Qiu Kai, deputy secretary-general of the Industrial Coordination and Development Working Committee of the China Automobile Dealers Association, said that the main reason for the dismal sales of GAC FCA is that the product line is too single (all SUV models), the product replacement speed is slow, and the product strength is weaker than that of competing models. From an internal point of view, on the one hand, GAC FCA failed to grasp the needs of domestic consumers, or for Chinese consumers, especially the young generation of consumers, the rapid change of consumer demand and continuous iteration of consumer demand and car buying culture did not respond and respond in a timely manner, resulting in the company's market response speed lagging behind the industry changes, on the other hand, GAC FCA in recent years The quality and level of marketing have declined, resulting in brand weakening, the media is not strong, and may also be because of poor sales, so the marketing budget is limited, which is equivalent to falling into a vicious circle.
"Externally, it is the rapid rise of powerful competitors, one is the Great Wall Haval, the other is Land Rover, Land Rover belongs to the luxury brand, although the sales volume is only about 100,000 vehicles, but it occupies the dominant position in the high-end SUV market, and the main circle culture, product strength and customer loyalty are still high; the Great Wall Haval is very good to hold the needs of consumers, and the market response and decision-making are very fast, whether it is Haval, Wei brand or tank, some models belong to the Internet red models, very attractive to young consumers, The cost performance is also very high, squeezing out the living space of GAC FCA. Qiu Kai pointed out.
Bai Yiyang, manager of the research department of CMB International, attributed GAC FCA's current plight to several reasons for organization, product and marketing. He pointed out that the current situation of GAC FCA has problems in multiple links such as organization, products, and marketing, and it is not something that can be changed by a single measure. From the news of this stock ratio, it can be seen that GAC Group and Stellantis have certain obstacles in communication. Organizational aspect refers to the two sides of the management of running-in has a certain difference, reflected in the specific implementation level of the production and marketing team separation, capacity relocation, etc.; the product level is relatively single, lack of competitiveness of the model, at the same time in fuel consumption, intelligent configuration and other aspects of the competitiveness is not strong, there are burning oil, transmission failure and other issues; marketing brand positioning is not clear enough, more arrogantly copied the overseas brand image, resulting in dissatisfaction in China.
The "two-headed management" dilemma
"Dual-head management" is easier to reach an agreement in the upward momentum, but in the downward momentum, there will be relatively large contradictions, and even the situation that the strategy cannot be advanced.
In the history of GAC FCA's joint venture, Zheng Jie served as the president of GAC FCA Sales Company, and during her leadership of the Jeep brand, the import sales of the Jeep brand in China increased by 107% year-on-year in 2012, the highest level since 2000 to that time; after the GAC FCA joint venture in 2015, she led the Jeep brand to achieve annual sales of more than 100,000 vehicles in 2016.
In May 2019, GAC FCA announced the implementation of integrated production and marketing operations, Zheng Jie left, Yan Zhuangli from GAC as the chairman of GAC FCA, Cai Dini from a foreign party as vice chairman and president, Guangqi Honda's former deputy general manager Zhang Zongsheng as the executive vice president of GAC FCA, the major functional departments adopted a "dual-headed system" management, that is, when passing a decision, both Chinese and foreign managers need to agree, and when denying a decision, only one party can deny it.
In this regard, Bai Yiyang said that "double-headed management" is relatively easy to reach an agreement in the upward momentum, but in the downward momentum, there will be relatively large contradictions, and even the strategic inability to advance. Qiu Kai also pointed out that the advantage of "double-headed management" should be to ensure that both sides have equal discourse power, the disadvantage is that it may lead to a reduction in decision-making efficiency, and the implementation of the company's strategy is hindered because it is not in line with the interests of one party, which is not conducive to the overall long-term development of the company. Ren Wanfu also believes that the "dual-headed system" is prone to conflict and internal friction.
Judging from the development of GAC FCA in the past two years, GAC FCA has not ushered in a turnaround in development due to the integration of production and marketing and "double-headed management". In addition to the continuous decline in sales, GAC FCA is also in financial crisis, the data shows that in the past three years, GAC FCA cumulative net loss of nearly 5 billion yuan, GAC FCA in 2020 annual net assets fell from 1.336 billion yuan at the beginning of the year to -331 million yuan, according to GAC Group's 2021 interim report, GAC FCA net assets fell to -1.438 billion yuan, a loss of nearly 6 billion yuan in four years.
GAC Group's 2021 semi-annual report, source: Juchao Information Network
Self-help to break the crisis?
In recent years, GAC FCA has shown a cliff-like decline, and even appeared "insolvent". In the face of the exit crisis, changing the joint venture share ratio will be gac FCA's last struggle.
In the face of a sharp decline in sales, the stock ratio is released, and for the current GAC FCA, it seems that the arrow is on the string, and whether it can shoot the bullseye depends on the strategic layout of GAC FCA in the future. Qiu Kai said that the equity adjustment means that the control and discourse power of the Chinese side and the foreign party over the joint venture company will change, just like bmw Brilliance, JAC Volkswagen, Dongfeng Yueda Kia before, the foreign party will occupy the dominant right, in the production and manufacturing, model introduction, channel development and other aspects of more convenient for it to layout in accordance with its own planning and ideas, and at the same time, if the company turns losses into profits in the future, it can also get more benefits. As a listed company, the sale of part of the equity of GAC Group can also weaken the "negative effect" of GAC FCA's loss on the overall operating performance of the group to a certain extent, which can be "stopped loss" in the short term, which is a win-win situation in the long run.
Qiu Kai further said that the Chinese market in the context of the global new crown pandemic is very strong, the market potential and development space is still there, the development prospects are also good, Stellantis Group is to see this before deciding to continue to bet on the Chinese market, improve the equity ratio of joint ventures, if the future foreign party occupies the company's dominance, the more likely change is that the foreign party will have a greater right to speak in the company's business strategy, and the decision-making efficiency will be higher. In the past 50:50, the Chinese side and the foreign party need to negotiate when making important strategic decisions of the company, and the efficiency may be affected.
Then, whether stellantis group and GAC group can bring a turnaround situation for GAC FCA still depends on the subsequent development.
According to the data released by the China Association of Automobile Manufacturers, the production and sales of new energy vehicles in 2021 reached 3.545 million units and 3.521 million units, respectively, an increase of 1.6 times year-on-year, and the market share reached 13.4%, 8 percentage points higher than that of the previous year. The China Automobile Association said that new energy vehicles have become the biggest highlight of the automotive industry, and its market development has shifted from policy-driven to market-driven new development stages, showing a good development situation of double improvement in market scale and development quality.
Gac FCA is lagging behind in electrification, and now there are only Jeep series models, with a single product matrix. In the list of joint venture brands, the figure of GAC FCA has not been seen for a long time. Among the competing models in the same level, Land Rover's cumulative sales in 2021 are 36,389 units, and Great Wall Motor's tank brand has accumulated sales of 84,765 vehicles in 2021, far exceeding GAC FCA's 20123 vehicles.
In this regard, Ren Wanfu, an analyst in the automotive industry, believes that GAC FCA has gone high and low, and in recent years it has shown a cliff-like decline, and even a situation of "insolvency". In the face of the exit crisis, changing the joint venture share ratio will be gac FCA's last struggle. As for the reduction of GAC Group, Ren Wanfu said that GAC FCA continued to lose money and has become a profit black hole of GAC Group, and it is not surprising that the reduction is reduced. After the Stellantis Group becomes dominant, it may increase investment in research and development and accelerate the pace of electrification.
At the end of 2021, the National Development and Reform Commission and the Ministry of Commerce issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition), announcing that from 1 January 2022, the mainland will abolish the restrictions on foreign ownership in passenger car manufacturing and the restriction on the establishment of no more than two joint ventures by the same foreign investor. This means that in 2022 and beyond, foreign car companies can increase their shareholding ratio to more than 50% or even achieve sole proprietorship.
Zhong Shi, a well-known commentator in the automotive industry, pointed out that after the liberalization of the stock ratio, foreign parties almost have to choose to adjust the foreign share ratio to occupy a controlling position, and how much the specific Chinese and foreign stock ratio will be readjusted depends on the respective strength and dependence of both Chinese and foreign parties. For GAC FCA, the current production and sales are low, and it does not matter whether the shares of GAC Group are relatively small in the future, but for Stellantis Group, it does not want to give up the GAC FCA sector, or hopes to restore to a relatively normal scale of operation in the future, so it is willing to become a controlling shareholder, and in the future, GAC FCA's foreign parties will bear more operational pressure, and can also force it to more actively introduce suitable products and technologies to the joint venture car companies as much as possible.
Exactly what new development elements Stellantis Group will inject into GAC FCA still depends on the specific content of Stellantis' Chinese market announcement in the global strategic plan on March 1, 2022.
Source: Gestapo Cars
Today, in the face of declining sales, continuous losses and external competitive pressures, how should GAC FCA salvage the situation and win the initiative in development?
Ren Wanfu believes that GAC FCA currently needs to accelerate the pace of electrification transformation and improve product quality in order to boost sales. After the change in GAC FCA's share ratio, it depends on the investment of Stellantis Group and whether it can introduce more brands and products, after all, it has released an electrification strategy of investing 30 billion euros to 2025 in 2021.
Talking about the development of GAC FCA, Bai Yiyang said that the future mainly depends on the strategic arrangement of Stellantis in China. In the absence of clear brand awareness and local partner support, from product introduction, production, marketing, after-sales service system and other aspects, need Tollantis to lead, which is a relatively systematic project.
Specific to the product, Qiu Kai said that the first is to speed up the speed of product upgrading, the introduction of more models that meet the needs of domestic consumers, while the product strength is excellent, only new models and new products can bring new vitality to enterprises, but also allow investors and the market to see confidence; secondly, it is necessary to increase marketing efforts, strengthen brand image and reputation, and try to save the unfavorable situation of the previous brand weakening; the third is to use the fan economy and community culture to further enhance customer stickiness and enhance customer experience. Jeep model user brand loyalty is still very high, especially like Wrangler, Grand Cherokee such models, Jeep model brought by this off-road, outdoor, adventure culture itself can form a circle culture, should make good use of this to strengthen the existing users and potential consumers brand perception and sense of belonging; the fourth can strengthen the financial leasing, used cars and other business areas layout and planning, promote new car sales.
For GAC FCA, it is facing sales and financial pressures, and the strength of competitors should not be underestimated, can it win back the situation through equity structure adjustment in the future and where will it go? Worth looking forward to.