Changan and AVIC merger: Happy reshuffle

China's Changan Automobile Group announced November 10 that it would take over two automakers under the Aviation Industry Corporation of China (AVIC), the country's national aircraft maker, which is the largest merger deal in the Chinese auto industry for years.

After its auto-making business and auto-parts assets are merged into Changan, AVIC will hold 23% stake in the new Changan Automobile Group, with the majority 77% share to be controlled by Changan Group's parent China Weaponry Equipment Group.

Changan Auto Group, one of China’s “big four” carmakers, may reach a total annual sales of 1.3 million to 1.4 million this year, With Hafei (sales of 240,000 vehicles a year ) and Changhe (150,000),to join in, the new Changan Auto Group will have a total sales of 1.8 million per year. It is vying with Dongfeng Motor Group to become the third biggest Chinese automaker (after SAIC Motor and FAW Group).

While the one big gets bigger, what will happened to the big three?

I think this may be a catalyst of a merger season. The auto market in 2009 is known as a market run by policy. When 2009 is to run to an end, domestic carmakers’ eyes are on the government’s further move, whether the incentives will go on or not, whether the eco-vehicle will get more benefit.

However, apparently the government has more to be taken into account. The restructuring of China’s auto market is meant to be another major concern.

Although China has become the biggest auto market worldwide, the number of domestic automakers is no less than 130, most of which have only reached an annual output of 10,000 vehicles. The robust growth of China’s auto market has led to the market disorders.

The Chinese government announced earlier this year that it plans to encourage consolidation of its auto companies into a "big four" and a "small four" segment to make the industry more competitive with established foreign rivals. Changan may be one of the pioneers to follow this tendency.

It seems 2010 will be a busy year for Chinese carmakers to be well restructured and to be big enough as giants. Okay then, Happy reshuffle this year.