FRANKFURT: Daimler has secured a stake in its partner BAIC Motor ahead of a planned stock offering by the Chinese carmaker, in an effort to catch up with larger German rivals in what could become the biggest market for luxury cars in the world.
Daimler will pay 640 million euros ($869 million) for a 12 per cent stake in BAIC Motor and get two seats on the board in a deal that signals the German company’s intention to reverse its flagging fortunes in China.
“We will be the first non-Chinese to take a stake in a Chinese OEM,” finance chief Bodo Uebber said, using the industry acronym for a carmaker.
While Zhejiang Geely Holding bought Sweden’s Volvo Cars, Germany’s MAN is the only western truckmaker to take a stake in a Chinese peer, acquiring a blocking minority in Sinotruk in 2009.
As part of the new deal, Daimler agreed to BAIC Motor raising its interest in their production joint venture, Beijing Benz Automotive Company (BBAC), by 1 per cent to 51 per cent. This would allow BAIC to consolidate operations ahead of its IPO, Daimler said.
In what amounts to a swap deal, Daimler will receive a further 1 per cent in the sales joint venture, Beijing Mercedes-Benz Sales Service, bringing its holding to 51 per cent. The deal with BAIC Motor is expected to close by the end of this year or in early 2014, Daimler said, suggesting that an IPO of the Chinese carmaker would not come any earlier.
Reuters first reported of Daimler’s intention to purchase an equity stake last month. Mainly because of difficulties in China, Daimler’s Mercedes-Benz brand is now the smallest of the big three German luxury carmakers after BMW and Volkswagen’s Audi, which together dominate the global market for high-end saloons and SUVs. After admitting in July that its poor sales in China were more than just temporary, Daimler has moved aggressively to bolster its fortunes there and plans to increase annual volumes by half to 300,000 vehicles in 2015.
In December, Daimler brought in a new sales chief for China, appointed a new management board member responsible solely for its Chinese operations and in December unified its two competing sales channels for locally built and imported cars. “There’s been a lot of talk about Mercedes falling behind, but you can see in the way the deal with BAIC Motor is structured, also in terms of the governance, that this is a very strong signal Daimler really means business in terms of China,” said a source with knowledge of the deal.
Daimler is not BAIC Motor’s only partner, however. Hyundai also operates a joint venture with the Beijing-based company even if the mass market Korean carmaker does not directly compete with Mercedes.
“Daimler will be the lead automotive investor and partner for BAIC Motor, no other carmaker like Hyundai is going to come in on this IPO that they’re planning. This is so important strategically because there will be a wave of consolidation in the automotive industry in China,” the source said.
“There’s around three dozen manufacturers there currently and Daimler doesn’t want to wait to see how things play out but actively shape it, strengthening the position of its partner.”