Daimler takes 12% stake in BAIC Motor

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Daimler today completed its purchase of a 12 percent stake in BAIC Motor. The German company will pay 625 million euros ($845 million) for a share in the passenger-car unit of its Chinese joint-venture partner, Beijing Automotive Group Co.

The deal comes ahead of a planned initial public offering of BAIC Motor.

"The strategic investment proves our long-term commitment to China and our partner," Daimler CEO Dieter Zetsche said.

"The cooperation between Daimler and BAIC Motor will contribute toward increasing our footprint in China and so enable us to actively participate even better in the huge opportunities the Chinese automotive market offers," the CEO added in a statement.

Crucial market

Catching up in China is crucial to Zetsche's target to surpass BMW Group and Volkswagen Group's Audi in global deliveries by the end of the decade. It currently ranks third in global premium-car sales behind leader BMW and Audi.

Success in the region was hampered in the past by separate sales organizations for imported and locally produced cars, which led to price cuts as the two competed with one another for customers.

Daimler laid out plans last December to fold sales into one entity jointly owned with BAIC, a combination completed earlier this year. The German manufacturer also promoted former truck-division executive Hubertus Troska to the management board, with responsibility specifically for China to underscore the market's importance.

As part of the deal between the two partners, BAIC will increase ownership in the production joint venture to 51 percent from 50 percent currently, and Daimler will raise its stake in the integrated sales partnership by 1 percent to 51 percent.

"Daimler has acknowledged its mistake and is now taking the right measures," said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. "To dedicate a board position to China was an important step. They finally gave China a priority."

Through 10 months, Mercedes' China deliveries are up 8 percent to 173,000, compared with growth of about 2 percent last year.

"Mercedes is on the right track in China," said Frank Biller, a German-based analyst at LBBW. "Sales have picked up since June and they seem to be gaining ground."

The gain, however, was dwarfed by 20 percent increases at its two main German competitors.

Returning to No. 1

Zetsche is backing his effort to regain the top sales position that Mercedes lost to BMW in 2005 by rolling out 13 new models without a predecessor. The model offensive includes the addition of the four-door CLA coupe last April and the forthcoming GLA compact SUV, which also will be locally produced in China.

Mercedes, which already makes the mid-sized C class, GLK SUV and the long-wheelbase version of the E class in the country, has plans to sell 300,000 cars in China in 2015.

Mercedes' global sales were up 11 percent through October, beating gains at BMW of 9 percent and Audi of 8 percent, helped by the higher demand this year for its models in China.

'Real catch-up'

"The real catch-up hasn't yet started," Pieper said. "You can't quickly correct years of tardiness."

Daimler is taking a long-term approach by increasing production in the country and boosting its dealer network. The company is on track to open 75 new outlets in China this year, Daimler Chief Financial Officer Bodo Uebber said last month. The expansion will continue with another 50 dealerships added annually in the next two years.

In August, the automaker said it will invest 2 billion euros by 2015 to double local production to more than 200,000 vehicles.

The manufacturer yesterday opened its first engine plant outside Germany in China. The factory, built at a cost of 400 million euros, will have an initial capacity to assemble 250,000 motors.

In February, Daimler first had announced it would buy a stake in BAIC Motor. As part of the deal, Daimler gets two seats on the Chinese automaker's board. Those seats will be held by CFO Uebber and China boss Troska.

Daimler says it is the first non-Chinese automaker to invest in a Chinese carmaker.

Bloomberg contributed to this report

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