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As a key state-owned company in Liaoning Province, Brilliance Group once enjoyed a reputation in the industry, but has now gone bankrupt and reorganized.
It owns four listed companies including Brilliance China, Shenhua Holdings, Jinbei Auto, and Xinchen Power. Among these, Brilliance China also owns the three independent brands of Brilliance China, Jinbei and Huasong, and the two main foreign brands of Renault and BMW. Production, research and development activities. “Holding” BMW’s thighs, why did Brilliance come to such a situation?
From a financial standpoint, the partnership with BMW has allowed Brilliance Group to savor the sweetness of introducing foreign R&D technology in the past. But it is precisely because of the excessive reliance on profit-making BMW Brilliance that its brands have been weak for a long time. In the first half of 2020, Brilliance Group’s revenue was 84.6 billion yuan and its net profit was 6.3 billion yuan; Brilliance China’s net profit was 4.045 billion yuan over the same period, contributing nearly two-thirds of its net profit. Excluding the investment income brought in by BMW, Brilliance China has suffered losses in recent years. In contrast to BMW Brilliance’s continued blood transfusion, sales of its brands continued to be weak. In the first half of this year, Brilliance China and Brilliance Jinbei sold 4937 and 6,845 vehicles respectively, and their sales dropped dramatically year on year.
The head of Brilliance Group stated that this reorganization involves only the brand owned by the group headquarters and does not involve the listed companies of the group and the joint ventures with BMW and Renault. But with BMW Brilliance’s equity adjustment, the days when Brilliance Group wanted to “make money” from the joint venture will also end. Under the previous agreement between the two parties, by 2022, BMW will acquire a 25% stake in the joint venture from Brilliance and become a controlling shareholder of 75%. This not only indicates that BMW will become the first foreign-owned auto company to break the cap on the foreign ownership ratio of joint venture auto companies, it also means that Brilliance China will no longer merge BMW Brilliance’s balance sheets by then.
It is not the Brilliance Group that faces such a situation. In 2018 the National Commission for Development and Reform promulgated the policy of opening the participation relationship of the joint ventures upon expiry of the contract of the car companies of the joint venture: in 2018 the restrictions on foreign participation in special vehicles and new vehicles will be canceled energetic; in 2020 the restrictions on foreign participation on commercial vehicles will be lifted; 2022 This year the restriction on the ratio of foreign shares of passenger cars will be lifted and the restriction on no more than two joint ventures will be lifted.
This means that during the five-year transition period, the auto industry will completely remove restrictions on foreign ownership.
From a trend point of view, it is a high probability event that the foreign ownership ratio of joint venture auto companies with weaker Chinese overall strength will increase to gain control. Without the blood transfusion of joint ventures, the fact that local companies can maintain healthy operations and gain a foothold in the market by relying on their own businesses will pose a major challenge for companies with weak independent brands.
This also gave some companies a reminder: the days of enjoying joint venture profits are coming to an end. Enhancing independent innovation capabilities and strengthening independent brands are top priorities. Local companies need to find new positions in the deep reform of the auto industry as soon as possible.
Especially under the current trend of electrification and intelligence, the Chinese auto industry has introduced new development opportunities. For some of the independent brands of traditional automakers, it is particularly important to seize these opportunities. In fact, some proprietary brands have earned a place with their keen sense of smell and execution. Shortages in fuel vehicles in the past have been a kind of pressure, but they can also turn into an urgent need for change.
Of course, it is not easy to achieve “cornering overtaking” in the field of new energy vehicles.
First of all, the “four modernizations” (electricity, intelligence, connectivity and sharing) of the automotive industry also require greater innovation capacities and companies must continue to increase investment in research and development. Second, foreign carmakers and new carmakers have accelerated their take-up in recent years and have also created competitive pressure on traditional carmakers who want to share the new energy car market. Therefore, although the development trend of new energy vehicles is very clear, it is not easy to stand out in the new competitive landscape.
From this perspective, the glory and loneliness of Brilliance, which is undergoing renovation, have passed. The most important thing is to build on the present, strengthen independent innovation and seek a new life in difficult situations.
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