(Graphics: GT)
Move will allow division to focus on low-end offerings
China FAW Group Corp will consolidate its historic Hongqi assets among its subsidiaries, the 21st Century Business Herald reported on Tuesday.
Experts said the move may help FAW Car Co, now facing a rocky road, to better focus on its low-end offerings.
For decades, the Hongqi (red flag) car has been seen as a symbol of China's domestic auto industry and the country's manufacturing capability.
FAW's self-developed, top-grade limousine -Hongqi L5 served distinguished guests at the Group of 20 summit in Hangzhou, capital of East China's Zhejiang Province, earlier in September.
Other recent high-profile events where the -Hongqi limousine was used included the 2014 APEC Economic Leaders' Meeting and the Commemoration of the 70th Anniversary of Victory of Chinese People's Resistance Against Japanese Aggression and World Anti-Fascist War in 2015.
Hongqi assets have until now been under FAW Car Co, a wholly owned major subsidiary of FAW Group. However, according to the 21st Century Business Herald, the Hongqi assets will be spun off from FAW Car Co and absorbed by the FAW Group Corp.
The Hongqi assets will then be put under a subsidiary that has yet to be established under the FAW Group.
FAW Co's performance has been declining. FAW Car Co sold 80,700 units during the first half, down 33.21 percent year-on-year, according to the company's stock filing on August 26.
During the same period, the nation's car sales grew by 8.1 percent amid a cooling economy, data from the China Association of Automobile Manufacturers (CAAM) showed.
FAW Car Co said that it swung to a net loss of 826.1 million yuan ($123.89 million) in the first half of the year from a net profit of 164.2 million yuan a year earlier.
People answering the phones at FAW Group and FAW Car Co on Tuesday said they were not authorized to confirm the media report.
The 21st Century Business Herald reported that 5,021 units of the Hongqi H7 were produced in 2015, up 98.3 percent year-on-year, citing data from the CAAM. Sales of the model stood at 5,037 units, increasing 86 percent from the previous year.
A Hongqi dealer in Beijing, who declined to be named, told the Global Times Tuesday that sales of Hongqi models have been going "as usual" this year.
The production and sales figure were in stark contrast to FAW's production capacity for the -Hongqi line, which was 30,000 units a year, the report said.
The report said all production assets of Hongqi are now managed by FAW Car Co, and the utilization rate is low due to slack sales.
A spinoff could help improve FAW Car Co's weak financial performance as research and development costs for the Hongqi brand are high, the report said, citing an insider.
After the spinoff, FAW Car will lose its exclusive rights, a right it has been enjoying since 1997, to the Hongqi marque, which it will then share with the FAW Group and authorized third parties, according to the report.
Jia Xinguang, an auto industry expert, told the Global Times Tuesday that although the situation is still developing, it strikes him that the move is more of a strategic one than a tactical one. It should be seen as an internal strategy, Jia said.
"This will liberate FAW Car Co, which previously was torn between two distinctive development paths: one aimed at government customers with high-priced models and another aimed at ordinary citizens with low-price offerings," Jia remarked. "The company can focus on its Besturn line in the future."
The Hongqi L5 is priced at 5 million yuan while the low-end Besturn is priced at about 70,000 yuan.
