Walking away from Fiat, Nanjing Auto moves closer to SAIC

SHANGHAI - August 27 (Gasgoo.com) - After signing letter of intent for strategic alliance last month, Nanjing Automobile (Group) Corp is moving closer towards Shanghai Automotive Industry Corp (SAIC) and distant itself from Fiat.

Wang Haoliang, president and chairman of Nanjing Auto outlined the advantages of tie-up with SAIC on several occasions. Nanjing Auto has launched an in-house survey about the possible cooperation between SAIC and Nanjing Auto , and the workers responded positively to the questionnaires, according to a Chinese media report.

The Beijing News said the two sides will come up with a detailed plan after the due diligence process is completed by October. SAIC, the larger and more profitable of the two has sent a team of legal and financial advisers to visit Nanjing Auto to find out how much it can benefit from the cooperation.

Under the merge plan, SAIC will own 100 percent stake of Nanjing Auto. The current largest shareholder of Nanjing Auto, Yuejin Motor Group will swap stakes with SAIC, thus Yuejin will also hold stakes of SAIC group and its subsidiary Shanghai Automotive Co Ltd.

If the merger is realized, competition between the two MG Rover carry-overs MG7, developed by Nanjing Auto, and the Roewe 750 by SAIC could be eased.

However, Nanjing Fiat, a joint venture between Nanjing Auto and Fiat, which has lost more than 100 million yuan during the first six months, will not be involved in the merger.

Analysts say that Nanjing Fiat, the loss-making company will possibly become the production base for SAIC or Nanjing Auto's MG brand products, or even a sheer manufacturer under production licensing.

In mid-August, a Chinese executive was appointed as leader of Nanjing Fiat, which was deemed as the last effort to save Nanjing Fiat. Fiat CEO Sergio Marchionne publicly expressed his dissatisfaction with the Nanjing Fiat's far-below-expectation performance.

Fiat hopes to sell 300,000 cars in China by 2010. But its Nanjing joint venture last year produced just a bit more than 30,000 cars.

Early this month, Fiat signed an engine supply deal with Chery Automobile; also the two are planning to set up a 50:50 joint venture to produce cars for the Chinese market. These developments have further complicated uncertainty about whether the partnership between Fiat and Nanjing Auto would move forward.