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China's Geely bids for MG Rover
leftovers
BEIJING -
Privately owned mainland Chinese automaker Geely
Automobile Wednesday said it is in talks to buy
the molds and production equipment of collapsed
British automaker MG Rover, and intends to build
cars in Hong Kong.
Hong Kong-listed Geely
and MG Rover held negotiations on the molds and
production equipment business in April, Geely
said. "Negotiations are at a preliminary stage and
not related to a merger of equity shares of MG
Rover," Geely said. Geely and MG Rover started
negotiating plans to form a joint venture several
years ago, but talks were suspended in the middle
of 2004.
Shanghai Automotive Industry Corp
(SAIC), one of China's top state-owned automakers,
withdrew from talks to merge MG Rover in April.
Many industry analysts consider Rover to have been
in decline since the 1960s, and various attempts
by foreign players to revitalize the company,
including Honda involvement in the 1980s, a
purchase by German automaker BMW in the 1990s (BMW
later resold the company to a British consortium
for the token sum of 10 pounds sterling), and a
tie-up with Indian conglomerate Tata Group
involving the contribution of a rebadged Indica,
all ultimately failed to stem the decline. The
company finally ceased production on April 15.
On Wednesday, Geely and the Hong Kong
Productivity Council - a government-sponsored
organization aiming to promote increased business
productivity in Hong Kong - signed a memorandum of
understanding to collaborate in the development of
the first made-in-Hong Kong car. The car will be a
mid-to-high-range model, Geely said. The two
parties will establish an auto parts research and
development center at the end of this year in Hong
Kong, which will be joined by Hong Kong
manufacturers, it said. But Geely has not revealed
the amount it plans to invest in the Hong Kong
auto project.
"Upon successful
implementation of this project, we will look into
the possibility of producing this new model in
Hong Kong for export overseas, or, leveraging the
CEPA (Closer Economic Partnership Arrangement)
advantages, to introduce the new model to the
mainland market," said Andrew Leung, chairman of
the Hong Kong Productivity Council. The CEPA
started last year to facilitate Hong Kong's
exports to and investments in the mainland.
Li
Shufu, chairman of Geely, said the Hong Kong auto
project would help the company explore more
opportunities in the international auto market.
Song Bingshen, an analyst with Guotai & Jun'an
Securities Co Ltd, said: "There seem to be
synergies between Geely's talks with MG Rover and
its auto development project in Hong Kong. If
Geely gets MG Rover's molds and production
equipment, it is likely to move them to Hong Kong
to develop and build the planned mid-to-high-range
car," Song said.
MG Rover's production
equipment will be very helpful for Geely, a
manufacturer of cheap cars which needs to move its
product portfolio upward to expand its profit
margins and have a better brand image, he said.
Geely, 60.68% owned by Li, is producing compact
cars in east China's Zhejiang province and
Shanghai. Once a motorcycle and real estate
conglomerate, it started to produce cars in 1998.
Existing models include the Haoqing, Merrie,
Ulion, Freedom Cruiser, Maple and Beauty Leopard,
most of which retail for between 30,000 yuan
(US$3,623) and 80,000 yuan. Geely's sales grew by
23.3% year-on-year to 53,710 cars in the first
five months of this year, said a company official.
The company's stock price closed at 51 HK cents
(6.56 US cents) per share on June 22, up 2%.
Some analysts are skeptical about Geely's
auto project in Hong Kong. Yale Zhang, a
Shanghai-based analyst with US auto industry
consultancy CSM Worldwide Corp, said: "I cannot
understand why Geely wants to make cars in Hong
Kong, as the auto market is tiny and costs are
much higher there than in the mainland...I also
wonder whether Geely could have enough cash to buy
MG Rover's molds and production equipment given
its current profit-earning ability."
Geely
said earlier that it expects to sell 150,000 cars
this year, up from 100,000 units last year. Its
exports rocketed by 150% to more than 3,000 cars
in the period. The company aims to double its
exports to 10,000 cars this year from last year.
At the end of May, Geely clinched a deal with a
Malaysian partner to assemble its cars in the
Southeast Asian nation. Production in Malaysia
will start later this year with components shipped
from China and will reach 30,000 cars next year.
(Asia Pulse/XIC) |
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