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1.714 billion RMB! Dragon factory was acquired

2024-03-04 Update From: AutoBeta autobeta NAV: AutoBeta > News >

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AutoBeta(AutoBeta.net)10/19 Report--

Dongfeng Automobile Group Co., Ltd. (hereinafter referred to as "Dongfeng Group") disclosed the transaction notice that Dongfeng Group purchased DPCA Automobile Co., Ltd. (hereinafter referred to as "DPCA") and signed an "Asset transfer Agreement". Buy specific land use rights, buildings and structures of DMC in Wuhan and Xiangyang, China for 1.714 billion yuan.

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On the same day, Dongfeng Group also reached a leasing arrangement with DPCA, whereby Dongfeng Group will lease its target assets to DPCA for a term of 10 years. Industry insiders believe: "sell first and then operate in the form of leasing, this approach from the asset depreciation and other financial point of view, has a very direct effect on reducing costs."

It is understood that the factory sold this time is mainly used for DPCA to produce its existing Peugeot, Citroen and Fukang models. The target assets are mainly DPCA's third plant in Wuhan, according to people familiar with the matter.

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This strategic adjustment is the decision announced after the active negotiation between Dongfeng Group and Stellantis Group and the agreement between the two sides. In this announcement, Dongfeng Group reiterated that the governance model of Dongfeng Group and Stellantis Group remains unchanged, and the share ratio of China and France remains unchanged, and that Chinese and French shareholders will continue to implement the strategic cooperation agreement signed in 2019 and, as always, support the sustainable development of DPCA.

At the same time, Stellantis Group, a foreign shareholder of DPCA, also said that as a shareholder of DPCA, Stellantis Group will continue to cooperate with Dongfeng Group.

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In fact, the sale of the DPCA factory may have been a sign for a long time. In October, Tang Weishi, chief executive of Stellantis Group, said publicly that he might adopt a "light asset model" for brands such as Peugeot and Citroen in the Chinese market. In the face of a large amount of idle capacity, light assets may be a must for DPCA. After this adjustment and decision, DPCA may be able to continue to operate in China by virtue of the "light asset operation" model.

After the deal is completed, DPCA will have only one factory in Chengdu, Sichuan province, which has an annual production capacity of 360000 vehicles.

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Prior to this, DPCA has closed or sold the factory many times.

Data show that at its peak, DPCA has four major production bases, three of which are located in Wuhan, Hubei, that is, the first, second and third factories, while the fourth factory is located in Chengdu, Sichuan Province. the planned annual production capacity of these four major production bases is 300000, 150000, 300000 and 360000 respectively, with a total planned annual production capacity of more than 1 million vehicles.

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But there is only one factory left. In 2021, the first factory of DPCA stopped production and the land was resumed by the government. In February 2022, DPCA sold the second plant, which was taken over by Dongfeng Honda and transformed into a new factory specializing in the production of pure streetcars, while the production capacity of DPCA was reduced from over 1 million to 660000. At that time, Shenlong Motor said: "in order to support the Dragon Company, the government bought back the Shenlong II factory. This part of the repurchased factory and land were used to support the development of other local enterprises. In fact, it was given to Dongfeng Honda to support them to further develop new energy."

As for why DPCA has closed or sold the factory many times? The industry believes that the continuous decline in sales volume and idle production capacity is one of the important reasons for its successive sales of factories.

As a representative of French cars, Shenlong Automobile Co., Ltd. was established on May 18, 1992, jointly funded by Dongfeng Motor and Peugeot Citroen Group, headquartered in Wuhan, Hubei Province, with two major brands Dongfeng Peugeot and Dongfeng Citroen. At the peak of its development, DPCA sold more than 700000 vehicles for two consecutive years in 2014 and 2015, and successfully joined the first-tier joint venture brand camp, but after a short highlight, then came the problems of product quality, technology iteration, business philosophy and even corruption, coupled with the slow iteration of product renewal, DPCA sales began to decline rapidly.

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Data show that DPCA's sales fell by 15.2%, 36.85% and 32.89% respectively from 2016 to 2018. Since then, DPCA tried to save itself, but a number of reform measures failed to save DPCA's sales. Instead, sales fell off a cliff for two consecutive years in 2019 and 2020.

In September 2019, DPCA launched a "yuan" plan, hoping to change persistently sluggish sales, but the rhythm of DMC in Wuhan was disrupted by the 2020 epidemic, and the decline in sales of its brands continued to expand. In 2019, DPCA set an all-time low sales target of 235000 vehicles, but eventually completed only 113500 vehicles, down 55.17% from a year earlier. In October 2020, DPCA launched the "Yuan +" plan, which began to revive with the slogan "products are more Chinese, marketing is more accurate, service is more reliable, and operation is more efficient". However, the sales volume of DPCA this year was only 50300, down 55.74% from the same period last year, while the market share of French cars in China was less than 3%.

It was thought that DPCA would come to a standstill until the emergence of the Versailles C5X saved DPCA's declining sales. With the help of Dongfeng Citroen Versailles C5X on the market in September 2021, DPCA's annual sales returned to 100000.

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Data show that DPCA's annual sales in 2021 and 2022 were 101000 and 127000 respectively, an increase of 100.07 per cent and 30 per cent respectively over the same period last year. Although with the blessing of Versailles C5X, DPCA sales began to grow, but there is still a big gap from the peak.

Judging from the course of development, it is not too late for DPCA to enter the Chinese market, but today's DMC is not as good as it used to be. Data show that from January to September 2023, DPCA's cumulative sales fell 29.47% year-on-year to 63774 vehicles, achieving only 41.14% of the annual sales target of 155000 vehicles.

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At present, the source of sales of DPCA still depends on fuel cars, and it should be noted that the sales of Versailles C5X, the main selling product in the past, have declined in recent months. Data show that from July to September this year, Versailles C5X sales were 1562, 1021 and 853 respectively, showing a gradual decline. In this context, DPCA may not be able to achieve annual sales expectations.

During the year, DPCA announced a marketing change plan to prepare for a comprehensive electrified transformation, in which Dongfeng Citroen and Dongfeng Peugeot will have unified management and network integration. DPCA hopes to speed up the process of electrified transformation by adjusting the structure of the marketing field. According to the plan, from 2024, DPCA will no longer launch new fuel vehicle models, and eight new cars with pure electricity, plug-in and extended range power system will be launched in the next five years, and the first new energy model is expected to go on sale in 2024.

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However, now the major car companies have entered a cruel "knockout" stage, while French cars do not have a strong sense of presence in the domestic market, coupled with the slow electrification transformation. Obviously, the road ahead of DPCA, which is trying to rely on new energy to help the overall upward development, is not clear. Based on this, DPCA has to find a new way out-- to overseas export markets.

At present, DPCA is developing the export business of complete vehicles and parts with the help of the global resources of Stellantis Group. The Stellantis Group also expressed support for the export of Peugeot and Citroen brands, with Peugeot 4008 and Peugeot 5008 exporting to ASEAN and Citroen C5X to Europe. Data show that in 2022, the total export volume of DPCA was 37000 vehicles, an increase of 180 per cent over the same period last year.

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Zhang Zutong, member of the standing Committee of the Party Committee and Deputy General Manager of Dongfeng Automobile Group Co., Ltd., and Chairman of Shenlong Automobile Co., Ltd., said: "this is an important measure implemented in combination with Dongfeng and Stellantis strategic arrangements, and the company's own characteristics, and is most conducive to the long-term and stable development of DPCA."

As for whether DPCA can return to its former glory after selling the factory light, there may be an answer soon.

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