After acquiring automotive designs from GM’s Saab division, Beijing Automotive Industry Holding (BAIC) Corporation plans to launch an ambitious campaign to expand its brand, both domestically and overseas.
China’s fifth-largest automaker has announced that it plans to invest the U.S. equivalent of $4.8 billion in research and development of new vehicles over the next three years. The new vehicles will be based on Saab technology which the company acquired from Saab’s parent company, General Motors, for $200 million. The technologies include those used in two of Saab’s engines as three complete vehicle platforms.
BAIC’s chairman Xu Heyi said, “Someone has commented that the purchase of Saab’s intellectual property can help cut short the development time for Beijing Auto’s own-brand passenger vehicles by 4-5 years. We basically agree with the view.”
BAIC plans to begin integrating its newly acquired technology into its current vehicle lineup and has set a goal of selling 100,000 units in 2011 according to Xu. He estimates that the company will complete construction of new production facilities, capable of producing 150,000 vehicles annually that same year.
Changjiang Securities analyst Tan Kunyuan thinks the sales estimates may be overly-aggressive. He said, “It will take at least a year for the market to recognize the brand and BAIC probably would need to modify the appearance of Saab cars to fit with Chinese market demand.”
Earlier this year, China surpassed the U.S. as the world’s largest automotive market. Demand and sales soared as the country began to rebound from the global recession and Beijing launched a series of incentive programs designed to stimulate the automotive industry.
Despite recent advancements within China’s auto industry, there is still a sizeable technology gap between domestic Chinese carmakers and their overseas rivals. To close that gap, many Chinese automakers have begun acquiring foreign designs and technologies. GM, Ford and Chrysler have shed money-losing divisions like Saab, Hummer and Volvo and have found willing, well-funded buyers with in China.
China’s Zhejiang Geely Holding Group is currently in talks with Ford Motor Company for the acquisition of its Volvo division. General Motors has apparently found a buyer for its Hummer brand in China-based Sichuan Tengzhong Heavy Industrial Machinery.
According to Xu, BAIC sold 1.24 million vehicles this year and posted a net profit of 6 billion yuan. Total revenue for the year is estimated at 116 billion yuan.
BAIC is also involved in production partnerships with German automaker, Daimler AG and South Korea’s Hyundai Motor Company. The majority of the output from these partnerships is sold in the domestic market.
The company, which currently has a 20 billion yuan line of credit, is also preparing for an initial public offering. The company has not released details concerning the IPO. BAIC enlisted the help of U.S. investment bank Morgan Stanley in its acquisition of Saab, but there is no indication that the firm will be involved in the initial stock offering.
Earlier this year, all indications were that GM would sell its Saab division, in totality, to Koenigsegg Group of Sweden, but that deal fell through with Koenigsegg abruptly backed out. BAIC had been waiting in the wings and moved quickly to acquire key manufacturing and management components that it says will allow it to produce high-quality passenger cars that can compete against imported models. Those technologies include intellectual property for the 9-3 and 9-5 passenger sedan as well as some manufacturing equipment which will be relocated from Saab’s production facilities to BAIC’s plants in China.
In addition to exporting these vehicles, Xu said BAIC also has plans to establish joint ventures with companies to facilitate direct sales in overseas markets.
Despite the loss of intellectual property to BAIC, Swedish automaker Spyker Cars NV has said that it is still interested in acquiring Saab’s remaining assets. Last week, GM announced that negotiations for the sale had reached an impasse and that it planned to close down the brand, but Spyker has submitted a new proposal and appears confident that a deal can be struck.