China Motor Corp joins Mercedes van venture in China

China Motor Corp (中華汽車), a leading commercial vehicle maker in Taiwan, is expected to start making Mercedes-Benz vans in China in 2005, through a joint venture with Daimler-Chrysler AG and a Chinese automaker.

"The tie-up with DaimlerChrysler and the Chinese partner will provide us a new growth business, especially at a time that Taiwan's auto market is gradually shrinking," said China Motor spokesman Hsu Li-min (許利民), confirming reports by local media about the three-way joint venture.

Hsu said China Motor will hold about 17 percent of the new venture, DaimlerChrysler Vans China, which will involve a total investment of 200 million euros by the various firms involved.

Fujian Automotive Industry Corp (福建省汽車工業集團) will hold another 50 percent of the venture, while DaimlerChrysler Vans Hong Kong Ltd will hold the remaining share. Daimler-Chrysler Vans Hong Kong is jointly formed by DaimlerChrysler and China Motor.

Initially, China Motor will make 20,000 Mercedes-Benz Sprinter, Vito and Viano vans at the factory located in Fuzhou. The company hopes to roll out 40,000 vehicles a year in the future.

"The joint venture will have a positive effect on China Motor," said Kevin Chung (鐘國忠), an analyst with Jih Sun Securities Investment Consulting Co (日盛證券).

Chung expects China Motor shares to rise to as much as NT$68.0 each in January.

Another analyst, however, did not positively react to the news, as China Motor's shares remained unchanged to close at NT$62 each on the TAIEX yesterday.

"The deal has been factored into the market's response. Besides, it is still premature to say how much the joint venture will bring to China Motor," said Arthur Liu (劉逸平), an automobile analyst with Hua Nan Securities Investment Management Co (華南永昌證券).

Still, what concerns investors most is the speculation that China Motor plans to sell 15-percent of its holdings in profit-making Southeast Motor Corp (東南汽車) to its Japanese partner, Mitsubishi Motor Corp, next year, Liu said. Southeast Motor is a joint 50-50 venture set up in 1996 by China Motor and Fujian Automotive.

China Motor aims to pocket in NT$1.5 billon in earnings this year from Southeast Motor, and is expected to receive a greater contribution next year, China Motor's Hsu said.

"If it is true, the share sale will offset the profits brought by the joint van venture. And that will lead to a slower 10 to 20 percent sales growth for China Motor in the foreseeable future," Liu predicted.

China Motor's future sales growth will primarily come from Southeast Motor, as the company's after-tax earnings-per-share is expected to climb to NT$6.2 next year from NT$5.56 this year, he forecast.

During the third quarter, the Chinese unit's earnings, NT$0.7 a share, made up about 50 percent of China Motor's NT$1.3 earnings-per-share.

The percentage will exceed that level next year, Liu said.