TOKYO - The merger of two of China's largest automakers could give General Motors' struggling joint venture in Shenyang a new lease on life.
China's promised consolidation of its sprawling auto industry has begun in earnest with the merger of First Auto Works, or FAW, in the northern city of Changchun with GM's partner Jinbei Auto in nearby Shenyang.
Foreign executives in the country confirm reports from China that First Auto has acquired 51 percent control of Jinbei. The Changchun company purchased state-owned shares of Jinbei at a price reported to be $70 million.
First Auto is China's second largest automaker after Shanghai Automotive Industry Corp., and is one of Volkswagen AG's two partners in the country.
Jinbei ranks in the lower half of the top 10, with annual production of about 50,000 units. Besides its 3-year-old joint venture with GM, Jinbei has technical links with Toyota Motor Corp.
'We were informed about it, and we are looking at the full implications,' said GM spokeswoman Pat Hawkins in Beijing.
She said the company expects to have a 'positive working relationship' with the new owners.
CAPITAL WOES
GM controls 30 percent of the $100*million Jinbei-GM Automotive joint venture in Shenyang. But the operation, which started assembling S-series trucks on a semi-knockdown basis in 1992, has limped along.
Assembly ground to a virtual halt in 1993 after working capital from China's banks dried up as the government sought to cool off an overheated economy. During the past 18 months output has been virtually nil, according to company sources.
Insiders at both GM and Toyota have been critical of local management. But the merger has brought new optimism to Jinbei-GM Automotive, GM executives in Asia maintain.
'We are discussing a future product program with FAW,' said a GM official. 'We are going to be here for the long haul.'
The relationship with Jinbei has been stormy at times. In 1993, GM replaced its top executive in Shenyang, Robert Stramy, after only 20 months. Before the change, there had been reports of squabbling between the partners and predictions from Jinbei officials that expatriate heads would roll. But GM denied that its partner forced the change. Later, the venture dropped Jinbei's chief executive, Zhao Xiyou, from its board of directors, reportedly at GM's insistence.
S10 DEMAND DRIES UP
The Chinese are understood to have pushed to quickly ramp up production to 50,000 units and reportedly resisted GM efforts to reduce the size of the work force.
But the main problem has been slack demand for the S10 pickup that is assembled in Shenyang along with the indigenous Jinbei 1040 and 1041 light trucks.
'Because of the government-induced recession, we have had few customers for our products,' said a GM executive in the region.
Toyota has been a technical collaborator with Jinbei Automotive since 1986. Kit assembly of HiAce-based Deluxe vans began in November 1991.
FAW-Volkswagen, a joint venture between First Auto and Volkswagen, began making Jettas in late 1991 and built about 17,000 last year. A new plant scheduled to be finished by the end of this year will give FAW-VW capacity to build 150,000 units. Engine and transmission plants will be added next year. First Auto also assembled about 20,000 Audi 100s under license last year.
China last year outlined an ambitious plan to consolidate more than 120 automakers into a 'Big Three' - First Auto in Changchun, Second Auto Works in Wuhan in Hubei Province, and Shanghai Automotive.
'The auto industry is an industry that requires an extremely high economy of scale,' Zhou Tiejing, Jinbei's deputy general manager, told the Shanghai Securities News. 'Against this background, we decided to transfer the shares and merge with a big group.'
China's vehicle assemblers built more than 1.3 million vehicles last year, including about 250,000 passenger cars. An industry master plan adopted by the government last year calls for production of 2.7 million vehicles by 2000, half of them passenger cars. Government officials want production to climb to 7 million by 2010, including 2.3 million passenger cars.
The China connection
The expected consolidation of China's auto industry has begun in earnest with First Auto Works' purchase of 51 percent of Jinbei Auto. A snapshot:
First Auto Works
China's second-largest carmaker
New joint plant with Volkswagen opens this year
Assembled 20,000 Audis last year under license
Jinbei Auto
Annual production: 50,000
Has technical links with Toyota Motor Corp.
GM controls 30 percent of Jinbei-GM Automotive joint venture
