In the 156th batch of vehicle manufacturer and product admission catalogs released by the National Development and Reform Commission (NDRC), 17 sedan brands and 39 new car models were granted "Enrollment Cards" by the commission. Among them, Hafei Motors stood out with six models, making it the largest company in this list. This move highlights the growing influence of Hafei in China’s automotive sector.
On November 28, 2007, Dongfeng Motor issued a 2.1 billion yuan one-year short-term financing bill. Soon after, it signed an agreement with AVIC to acquire Hafei Motors. However, the deal did not include Changhe Automotive, another AVIC subsidiary, leading to a temporary suspension of the full acquisition of CNAC's vehicle assets. This decision raised questions about the future direction of Dongfeng's expansion strategy.
According to Dongfeng Motor's board-approved development plan, the company aims to focus on resource expansion, cost competitiveness, and innovation over the next five years. Zhu Fushou, Dongfeng’s general manager, stated that while acquisitions are not ruled out, any major collaboration must be based on complementary strengths between the parties.
Dongfeng has long avoided acquiring Changhe, as the two AVIC subsidiaries have overlapping product lines and limited synergy. Combining both could create internal conflicts, especially in the mini-vehicle segment where Dongfeng already has its own brand, Pan’an. The challenge lies in managing three similar product lines without causing confusion or inefficiency.
Data from the China Association of Automobile Manufacturers shows that Changhe sold 89,049 vehicles in the first half of 2007, a year-on-year decline of 11.4%. Its sedan sales dropped by 16.3%, and the company reported a net loss of 226 million yuan in 2006. In contrast, Hafei maintained steady sales, with over 200,000 units sold in the first 11 months of the previous year. While Hafei hasn’t seen explosive growth, it remains a strong player in the market.
Hafei and Changhe took different developmental paths. Hafei focused on independent R&D, while Changhe relied heavily on Suzuki for support. This divergence has led to different levels of success and market positioning.
At the 2008 Changhe Automotive Supplier Conference in Chengdu, Li Yao, chairman of Changhe and Changhe Suzuki, emphasized that the company will focus on small-displacement vehicles in 2008. This shift reflects a strategic move to align with market demands and environmental regulations.
Looking ahead, Hafei is expanding into commercial vehicles. It recently signed a letter of intent with PSA for commercial vehicle production. More importantly, the acquisition of Hafei would give Dongfeng access to high-quality assets, including Dongan Power, a key engine supplier. This could significantly strengthen Dongfeng’s own brand base and provide more support for its future development.
Dongan Mitsubishi, owned by Dongan Power, produced 300,000 engines in the first half of 2007. Many popular models, such as the BYD F3 and Hafei Saibao, use Dongan engines. Analysts believe that if the Hafei acquisition goes through, Dongfeng could establish a new independent brand base in Harbin, further solidifying its engine production capabilities.
In the first three quarters of this year, Dongfeng Motor’s engine sales increased by 44.5% year-on-year, contributing significantly to the company’s profits. The group’s parts and components cluster around joint ventures is becoming increasingly influential. Industry insiders suggest that the next phase of competition among China’s top automakers will revolve around their parts systems and independent brand strategies.
As a central state-owned enterprise under SASAC, Dongfeng’s negotiations with AVIC align with the broader trend of SOE restructuring. Government-led initiatives are playing a crucial role in shaping the industry landscape. With the acquisition of Hafei, Dongfeng is well-positioned to challenge the dominance of larger players and strengthen its own brand presence.
The competitive dynamics among the three major groups—SAIC, FAW, and Dongfeng—are intensifying. SAIC aims for 1.5 million sales in 2007, while FAW targets 1.3 million. Dongfeng, although slightly behind, is finding opportunities in mini-vehicles, commercial vehicles, and its own brand development.
In the commercial vehicle segment, Dongfeng Commercial Vehicles ranked second in the first 11 months of 2007, with 310,000 units sold. In the mini-car sector, Dongfeng Junan is catching up with SAIC-GM-Wuling. The acquisition of Hafei offers Dongfeng a chance to leapfrog in these areas.
Geographically, Dongfeng has long sought a coastal production base. Hafei’s Shenzhen operations could fulfill this goal, while its Harbin base provides a foothold in Northeast China. The integration of listed capital between the two companies may also lead to a broader listing of the entire Dongfeng Group, similar to Shanghai Automotive.
Overall, Dongfeng’s acquisition of Hafei marks a significant step in its strategic evolution. It not only strengthens its position in multiple segments but also sets the stage for long-term growth and competitiveness in the Chinese auto industry.
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