Shenlong Auto Survival: Reduced Employees, Land Sales, Closed Factories, Wandering at the Crossroads

 Shenlong Auto Survival: Reduced Employees, Land Sales, Closed Factories, Wandering at the Crossroads

According to the summary of the meeting, the two sides have reached an agreement that Shenlong Company, a joint venture between PSA Group and Dongfeng Group in China, will close the first Shenlong Wuhan Plant, sell the second Wuhan Plant and reduce the number of employees by nearly 4,000.

Some pictures circulated online are not our companys real internal documents, and there are many faults in the content. We are preparing to clarify them with our shareholders. On August 11, the relevant head of Dongfeng Group said in an interview with the 21st century economic reporter.

About Dongfengs sale of its PSA shares, its just rumors. We dont comment on rumors. Subsequently, the relevant person in charge of Asia of PSA Group told reporters, As for the sale of land, the sale of plant equipment and the reduction of staff, what I can say is that PSA is working with our partners in China to improve our performance in the Chinese market in all aspects.

I dont think Dongfeng will sell its PSA shares. Holding PSA shares is not the same thing as operating difficulties of Shenlong Company. At present, the key is to unify the ideas of both shareholders and take measures to survive. Geely and Beiqi are buying shares. If Dongfeng sells shares, does that mean withdrawing from the competition? On August 12, an insider familiar with Dongfeng Automobile told reporters.

Although selling stocks has become a nonsense, many automotive industry experts believe that the reform of Shenlong is imminent. Reducing staff, selling land and clearing up excess capacity are also rational choices in Chinas automotive market.

Data show that in the first six months of this year, the loss of Shenlong has reached 2.532 billion yuan, and in the past 18 months, the loss of Shenlong has expanded to 6.2 billion yuan.

In the first half of 2019, PSA Groups sales in China fell by 60.6%. The total sales of Shenlong Automobile dropped by 60.05% compared with the same period last year. The brilliant sales of 734,000 cars in China in 2014 never returned.

We havent given up. Were still trying to cut fixed costs. A spokesman for PSA Group told 21st Century Economic Reporters.

Wandering at the crossroads

However, Tangs realistic globalization strategy has not been realized for many years. Last year, its European market sales still accounted for 80% of the total sales, and going out of Europe is still an urgent need for PSA.

The performance of Shenlong Company is the epitome of PSAs strategy in China, and the frustration of PSAs strategy in China is also one of the footnotes of its frustration in globalization.

Wandering at the crossroads, the time has come for PSA and Dongfeng to decide the fate of Shenlong Company in the future.

Facing the gloomy global automobile market and the ever-changing Chinese automobile market, the adjustment of Shenlong Company by both sides of the joint venture is not only a transformation, but also a self-help.

On the macro level, the Chinese market has been changing. Users are changing, product structure is changing, laws and regulations are changing, policies are changing, and scale is also changing. Shenlong has not adapted to this change in all respects. In the ever-changing Chinese market environment, the problem of Shenlong Company is always following others, lagging behind market changes, and not actively catering to the market. On the contrary, todays leading enterprises in the market, in fact, they do a good job of predicting the demand of the market, which also means that products and services can catch up in time. A senior expert in the automotive industry told reporters.

In fact, the dilemma faced by Shenlong is a cliche, and both sides of the joint venture have long been aware of it.

Chinas market is changing very fast and its decision-making is changing very fast. What China needs is speed. Speed is becoming more and more important. Thats why I want to say that Shenlongs reaction speed is not fast enough now. On July 3, Tang Weishi, in an interview with PSA headquarters in France, said that PSA would give joint ventures more autonomy in the future so as to respond more quickly to changes and demands in the market.

To this end, Peugeot and Citroen brands in China have carried out a meticulous layout, on the one hand, to put specific models in China, on the other hand, some models will be launched in China. In order to reflect the importance of the group headquarters to the Chinese market, Peugeot Global CEO Anbato said that the new generation of Peugeot 2008 and the electric version of Peugeot e-2008 will be launched earlier than the European market in Guangzhou Auto Show this year.

For a long time, the development of foreign-funded automobile enterprises in China has been determined by their product capacity. The products introduced by PSA are not well aware of the Chinese market. We hope that by adjusting Shenlong, we can speed up the introduction of marketable models in the Chinese market. In addition, it is very important to speed up the decision-making process. Weilai Capital Management Partner Zhang Junyi told 21st Century Economic Reporter.

Of course, the reform will not go smoothly. In the future organizational restructuring of the shareholders of both sides of the joint venture company, Shenlong will also face the painful period of breaking the arm to survive.

Can a broken arm survive?

Todays Chinas car market has changed from an incremental market to a stock market. In addition, the two-year economic downturn has brought about a competitive situation ofbayonet is in the red. Without strong brands, more market strategies and products, it is impossible to maintain its original position in the market. PSA has reached a point where it can not afford to lose. Recruitment can be defused. But whether its downsizing, shutting down factories or revitalizing assets, thats the way to survive.

In an interview with reporters on August 12, Fu Yu Wu, honorary chairman of the China Automotive Engineering Society, said, From an industry perspective, we also hope to have a fast-paced action to save the PSA that is on the verge of extinction. Although this action came a little late, its good news for Shenlong.

As a big burden of loss, it is natural to throw it away. This is the norm in the market economy. Enterprises are to make profits. If they are not profitable, they will not have value. A senior expert in the automotive industry told reporters.

It is undeniable that there is a serious problem of overcapacity of Shenlong automobile at present. It is understood that the total capacity of PSA in Chinas factories has reached 1.2 million vehicles, while the current capacity utilization rate of Shenlong automobile factory is 22%.

But in Zhang Junyis view, the adjustment of Shenlongs internal institutions is more important than its disposal of assets. The interests of the joint venture company are more important than anything else. Both sides need to make clear their determination to continue to do a good job of the joint venture. Shenlongs success is Dongfengs success and PSAs success.

Similarly, in the view of many industry insiders, the most fundamental issue for Shenlong Company is whether the two parties can cooperate sincerely and take the interests of the joint venture company as their best interests. In the future, we should formulate and implement strategies suitable for the development of joint venture companies, including product marketing and plant investment layout, on the basis of in-depth study of the Chinese market.

Shenlong Company has not developed well for so many years, in fact, the two sides of the cooperation have not merged well. The experts said, If the problem of adaptability of French cars to the Chinese market is to be solved, such as introducing some local designs, developing products locally, and even building a research and development center in China. Shanghai Volkswagen and SAIC GM have all stepped out of the running-in period of joint venture brands, but Shenlong Company is still in place.

In fact, the problem that Shenlong Company has been facing is that all joint venture brands have experienced pain at the beginning of the cooperation. The difference is that some enterprises can adapt to the rapid change of the Chinese market environment.

But historically, Dongfeng Groups international cooperation experience is not lacking. Dongfeng Honda and Dongfeng Nissan have good performances in the downturn market environment. The underlying reason is nothing more than forward-looking market forecasting and great attention paid to the Chinese market.

Japanese auto companies have attached great importance to the Chinese market to an unprecedented extent. By contrast, the action of PSA is dwarfed. This aspect deserves the consideration and reflection of PSA. Fu said.

Whether or not the final change in Shenlongs share ratio structure, the most critical issue is that French companies who know the Chinese market well do not know the Chinese automobile market. At present, Chinese consumers have their own automobile culture. They are more and more picky about their products and understand cars more and more. In order to save Shenlong Company, there must be a Chinese team, with the most knowledgeable people in the Chinese market.

At present, what Shenlong needs most is to let a good professional manager who understands the cyclical changes of Chinas automobile market go to the management company.

Source: Responsible Editor of Economic Reporting in the 21st Century: Wang Xiaowu_NF