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BMW's China partner drove to the brink of bankruptcy
"Huachen stands on the brink of bankruptcy, defaulting on $987.48 million in debt obligations."
In October 2003, the first China-made BMW 325i sedan rolled off a new production line owned by the German luxury brand and its joint venture partner, Brilliance, a subsidiary of provincially owned automaker Huachen Group.
It was a milestone for the iconic Bavarian marque, whose cars proved massively popular in what became the world’s largest market. Over the next nearly two decades, the joint venture was a cash cow for both BMW and Huachen, which is run by the government of the northeastern rust-belt province of Liaoning.
But this month, Huachen stands on the brink of bankruptcy, defaulting on 6.5 billion yuan ($987.48 million) in debt obligations. Chinese regulators have launched an investigation into possible violations of disclosure laws by the company.
The defaults by Huachen and two other Chinese state-owned companies have angered investors, who say their faith in the firms’ top-notch ratings, seemingly sound finances, and implicit state backing has been violated.
An examination of dozens of bond filings as well as interviews with former Huachen employees and experts shows how the carmaker squandered its advantage of having a gold-plated partner and was unable to leverage its know-how to develop competitive cars of its own. Some strategic missteps on the choice of models hurt it badly and an expansion into electric vehicles, funded by debt, came too late.
Chinese rivals such as Geely and Great Wall developed stronger products and technology, while state-backed SAIC Motor and Guangzhou Automobile grew with the know-how of joint venture partners.
Huachen, by comparison, used a scattershot approach to planning, with vehicles such as a mid-size sedan and compact SUV that were not complementary, said Yale Zhang, head of consultancy AutoForesight.
“Zhonghua did not plan its products systematically,” he said. “That made their products fail to meet the fast-changing market demand in China.”
Source: REUTERS
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