GAC, a state-owned Chinese automaker that knows its limits

SHANGHAI -- By allowing state-owned automakers to keep most of the profit generated by their joint ventures, Beijing hopes the companies will grow bigger and stronger.Heeding the government's call, most state-owned auto manufacturers quickly expanded their product lineups and acquired smaller state-owned automakers.But one company has acted differently. Guangzhou Automobile Group Co. knows its limits and has been much more cautious about expansion than other state-owned players.Established in 1997 in the south China city of Guangzhou, the company started out as a producer of motorcycles and small buses.Over the next eight years, Guangzhou Auto formed joint ventures with Honda Motor Co. and Toyota Motor Corp. Both partnerships turned out to be highly successful and generated huge profits.That's all very well, but it wasn't enough for the central government, which expects major state-owned automakers to develop their own car models.Guangzhou Auto knew it had limited expertise in technology and decided to take its time.In 2010, the company finally rolled out its first Trumpchi-brand model, a mid-sized sedan based on an old Alfa Romeo platform purchased from Fiat S.p.A. The company subsequently launched an SUV and a compact sedan based on a new platform.Guangzhou Auto did this without much help from Honda and Toyota, which carefully guarded their technology. But the two Japanese automakers did teach their partner about production management and quality control.So far, Guangzhou Auto has developed fewer car models than other major state-owned automakers, but its focused approach to product development has paid off.In October, sales of Trumpchi-brand cars exceeded 11,000 units. Most of those sales were generated by just two models. (The third model was introduced in July.) That's not bad for a beginner such as Guangzhou Auto.To meet the government's directive to expand, state-owned Chinese automakers have scoured the industry for acquisition targets. They generally prefer to snatch smaller state-owned companies.For example, SAIC Motor Corp. acquired Nanjing Automobile Group Co. in 2008, while Beijing Automotive Industry Holding Corp. bought a majority stake in Fujian Motor Industry Group Co. this year.But Guangzhou Auto is wary about acquiring other state-owned companies. The only partnership deal it has struck with a state-owned peer is a joint microcar development project it announced with Chery Automobile Co. this year.In general, Guangzhou Auto prefers to invest in private companies. In 2010, it purchased a 51 percent stake in Gonow Auto Co. This year, it bought 40 percent interest in a plant owned by ZX Auto Co.Gonow and ZX are both small SUV and pickup manufacturers.Privately run companies are more efficient than state-owned ones. Guangzhou Auto's leaders obviously know this. So they've allowed the founders of Gonow and ZX to stay and continue to run their companies.In a communiqu¨¦ released this month, Beijing pledged support for state-owned companies. That's a shame. China's state-owned automakers are known for inefficiency, and they are prone to reckless expansion.That's why few of them have developed profitable passenger vehicle businesses.Guangzhou Auto is worth watching. Thanks to the pragmatism of its management, the company should outperform its state-owned rivals.Pictured: Yang Jian is managing editor of Automotive News China.

GAC, a state-owned Chinese automaker that knows its limits

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