Chinese state-owned automakers Dongfeng Motor and Chongqing Changan Automobile are reportedly in advanced merger talks, sources familiar with the matter have told a news publication. As the New York Times reports, both companies are said to have held detailed discussions on how to merge their operations and have informed their foreign partners of the proposed plan.
This comes after speculations of a merger between the two carmakers emerged back in February following the announcement by both that their respective parent companies were planning a restructuring.
Combined, both carmakers manufacture about five million cars annually, but despite that volume both are still underutilising their production capacity. According to news reports, Dongfeng’s factories were operating at just 48% capacity last year, while Changan’s builds were at 47%, well below the profitability threshold of 60 to 80%.
A merger would allow both players to consolidate operations and reduce costs but also make the combined entity the largest auto group in China, allowing it to compete better in the marketplace. It is also said that the Chinese government, which fully owns the parent companies and holds majority ownership in both automakers, is looking at the merger as a way to phase out older production plants and bolster production of electric vehicles.
The proposed move isn’t surprising, given that the country has been urging its state-owned automakers, which have been relying on foreign joint venture partners to generate sales and profits, to become more independent in terms of technology, innovation and competitiveness, especially in the field of new energy vehicles.
It is not known how the planned merger will impact both automakers’ dealings with their foreign partners – Changan has been associated with Ford in China for more than two decades, while Dongfeng has long-running joint ventures with Japanese automakers Honda and Nissan.
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