China aims to merge carmaking groups to 10

Shanghai, February 24 (Gasgoo.com) Earlier this month, the Chinese government issued its detailed plan to consolidate the auto sector, including decisions to merge the country's major auto-making groups to 10 from 14, and to subsidize rural buyers of new vehicles, China Securities Journal reported on Tuesday.

The auto industry "boost plan," released by the State Council, China's cabinet, on Feb. 11., has detailed the guidelines on lifting the auto market demand, subsidizing the trade-in of old vehicles with new ones, scrapping road tolls, government's buying more Chinese-brand cars, standardizing auto financing and loans, normalizing the used-car market, expanding urban transportation systems, speeding up mergers of auto-making groups, supporting auto R&D efforts, and others.

The detailed plan appreciably supports the mergers and acquisitions by large auto-making groups, saying that the current 14 Chinese carmakers, which have 90% market share together, will be reduced to 10 or less through mergers.

The government wants to see two or three big Chinese groups with annual production each exceeding 2 million vehicles, plus four or five groups making over 1 million vehicles. Such consolidation would help automakers develop new products while cutting costs. A merger in early 2008 between Chinese auto giant SAIC Motor and smaller Nanjing Auto was one deal to pay off.

Some details of the plan also say the government will provide 5 billion yuan ($732 million) in subsidies from March to the end of this year to support rural buyers of vehicles.

The auto plan aims to ensure growing demand for cars so that China's total vehicle sales this year can exceed 10 million units, and grow an average 10% annually over the next three years.

Total vehicle sales rose just 6.7% to 9.38 million units last year. Sales plunged 14.35% from a year earlier in January 2009.