Daimler seeks to revive China operations with Beijing Auto deal

Tue Nov 19, 2013 5:51am EST
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By Norihiko Shirouzu and Samuel Shen

BEIJING (Reuters) - Daimler AG's (DAIGn.DE: Quote) agreement to buy a stake in Beijing Automotive Group's passenger car unit is part of a strategy to revive its operations in China, where the luxury car maker has fallen behind its German rivals and fallen out with its dealers.

The maker of Mercedes-Benz cars hopes closer co-operation with its state-owned local partner will help mend relations with its sales network that were fractured, according to dealership sources, during an overzealous drive to boost sales that hurt retailers' profitability.

On Tuesday, Daimler and Beijing Auto BEJINS.UL signed an agreement that will see the German company take a 12 percent equity stake in BAIC Motor and two seats on the board. Daimler said it would pay 625 million euros ($845.3 million) for the stake.

"Yes, there have been disagreements and there have been disappointments... but we see momentum is building again," said Daimler Chief Executive Dieter Zetsche. "I am very encouraged and very positive about future prospects of this country."

On Monday, Beijing Auto Chairman Xu Heyi had described the deal in a speech as indicating a future in which the two companies "will never be able to live apart from each other".

Mercedes-Benz's previously strong momentum in China - where demand for luxury cars is forecast to surpass that of the United States by 2020 - has stalled since last year, with sales volume falling far behind its key rivals BMW and Audi.

The deal will see BAIC Motor's share of the two companies' manufacturing joint venture rise to 51 percent, with a corresponding increase in Daimler's share of their sales joint venture to 51 percent. Both had previously been 50-50.

A more unified approach is needed in China, the world's biggest car market, where the problems of Mercedes-Benz have been compounded by a backlash from aggrieved dealers, who were particularly incensed by a letter from Daimler's China sales chief in February that accused them of "slackness".   Continued...

Daimler AG Chief Executive Dieter Zetsche is seen on a screen during the company's annual news conference in Stuttgart February 7, 2013. REUTERS/Michael Dalder