Costs drive Chang'an quest for partners

Chang'an cooperation with foreign partners will help cut its parts costs to foster development of its own-brand passenger vehicles, including Eado, Raeton and CS 35. [Ma Ning / Xinhua]

Mulling venture with France's Faurecia, says local report

Chang'an Automobile Group is considering plans to start a joint venture with French auto parts supplier Faurecia this year, according to a Chinese-language media report last week.

Chang'an has long wanted to form partnerships with competitive, international parts suppliers to improve product quality and cut costs, sources told 21 Century Business Herald.

Faurecia has expertise in emissions control technologies, automotive seating, exteriors and interior systems. It is also a subsidy of PSA Peugeot Citroen, which partnered with Chang'an in 2011 to make Citroen-brand vehicles at a plant in the southern city of Shenzhen.

"The original agreement was that after the Chang'an-PSA joint venture was established, Faurecia would also form a joint venture with Chang'an to supply parts for the new Sino-French vehicle partnership, but the plan was delayed for unknown reasons," the sources said, adding that the plan is expected to come to fruition this year.

The report said Chang'an President Xu Liuping called for acceleration in parts joint venture plans with world-class companies including Faurecia during the company's annual work conference last month.

The company has to cut its parts costs to foster development of its own-brand passenger vehicles, the sources said.

Chang'an mostly built minivans under its own brands, but started to change its portfolio last year with a new product offensive of several sedans and SUVs including the Eado, Raeton and CS 35. Though sales are good, high operational costs are undermining company's performance.

The sources said that in addition to Faurecia, Chang'an has also contacted other well-established suppliers like Magna and Benteler for possible cooperation.

"It is a trend for domestic carmakers to cooperate with multinational suppliers as they try to upgrade their products," the sources said.

Last year, Dongfeng partnered with German manufacturer Getrag International GmbH to jointly develop and make transmissions.

In 2011, Great Wall Motors linked with German component makers Borsch and BorgWarner on R&D of engine management and braking systems.

Current losses at PSA could prompt the deal between Chang'an and Faurecia, sources said.

The French company reported a net loss of 5 billion euros ($6.6 billion) last year, with its automotive division registering an operating loss of 1.5 billion euros, mostly due to deteriorating market in Europe.

With strong growth in North America and Asia, Faurecia managed to make up for the decline in Europe and increase total sales by 7 percent to 17 billion euros last year. But it is carrying 1.8 billion euros in debt.

Faurecia said that by 2016 it expects to generate 20 percent of its revenue in Asia, where the profit margin will be significantly higher than the group average.

Chang'an was the fourth-largest automaker in China by sales last year with nearly 2 million vehicles sold. It estimates it made 1.4 to 1.6 billion yuan in net profit.

The company operates joint ventures with Ford, Mazda, Suzuki and PSA Peugeot Citroen.

hantianyang@chinadaily.com.cn