2009 a year of milestone deals and record sales in auto marke

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Whopping sales growth.

China's auto market grew at a blistering pace in 2009 and unseated the US to become the world's No 1, powered by the nation's continuing economic growth. This has been seen by many as a truly exceptional performance, particularly as it came amid the hardships that faced the automotive industry globally as a result of the world's financial crisis. Vehicle sales in the year surged by 46.15 percent to 13.64 million units, exceeding all of the analysts' forecasts made at the beginning of the year.

Unprecedented M&As

The fragmented auto industry in China embraced a new round of mergers and acquisitions (M&As). In November, the Chang'an Motor Corp agreed to acquire the major auto businesses of one of the country's leading aircraft manufacturers, the Aviation Industry Corporation of China (AVIC). The deal was the largest auto M&A event in recent years. AVIC's two mini bus producers - Hafei and Changhe - and the engine company, Dong'an, will now be merged into Chang'an. The assets of Changhe's joint venture with Suzuki and Dong'an's engine tie-up with Mitisubishi will also be transferred into Chang'an. In return, AVIC will take a 23 percent stake of Chang'an. In May, the Guangzhou Automobile Group Corp bought a 29 percent stake of the Shanghai-listed SUV manufacturer, the Changfeng Motor Co Ltd, for 1 billion yuan ($146.48 million).

Major incentives

The Chinese government took significant measures to stimulate vehicle demand last year. In January 2009, purchase taxes on vehicles, with an engine capacity of less than 1.6 liters, were cut to 5 percent from 10 percent. The government has also earmarked a total of 5 billion yuan to subsidize rural buyers of mini buses and trucks during the period between March 1 and December 31. These incentive measures have resulted in a substantial boost for vehicle sales in China.

Luxury car race

BMW, the premium German carmaker, announced, at the beginning of November, that it plans to increase its annual production capacity in China to 300,000 cars in the long term, together with its joint venture partner, Brilliance China. This is part of a bid to further exploit the growing luxury vehicle market. The two companies run a joint venture in Shenyang, which has an existing plant with an annual capacity of 41,000 units. The figure will rise to 75,000 units in 2010. A second plant will also be built in Shenyang this year, with an initial capacity of 25,000 units coming on line in 2012. The new factory's capacity will be upped to 100,000 units in 2016 or 2017. BMW's expansion plans will further intensify competition in China's growing luxury car market. Last September, another German premium carmaker, Audi, opened a new 100,000-unit plant in Changchun, doubling its total annual production capacity in China to 200,000 cars.

Overseas buying spree

Chinese companies launched a raft of bids to acquire overseas car brands and assets last year. In June of 2009, the Sichuan Tengzhong Heavy Industry Machinery Co finalized a deal with General Motors to buy the SUV maker Hummer. The deal is pending approval by Chinese regulators. Reports said Tengzhong will pay $150 million to acquire the business. In November, a privately-owned carmaker, the Geely Holding Group Co Ltd, was named by Ford Motor Co as the preferred bidder for its Swedish-based Volvo Cars Corp. In December, Geely and Ford announced they had agreed on all "substantial commercial terms" regarding the sale of Volvo. A definitive sale agreement is likely to be signed in the first quarter of 2010, with completion of the transaction in the second quarter. Geely will reportedly spend $1.5-2 billion on the acquisition. Also in December, Beijing Automotive Industry Holding Corp clinched a deal to buy part of Saab's assets from General Motors for $200 million. The assets concerned mainly include the Saab 9-5 and 9-3 sedans and the Swedish brand's engine technologies.

Fiat's comeback

The Italian carmaker Fiat Auto geared up for its return to local production in China through a deal signed in July with the Guangzhou Automobile Group Corp. According to the deal, the two sides formed a 50-50 joint venture in the central city of Changsha to make Fiat cars in 2011. With a total investment of 400 million euros, the joint venture will have an initial production capacity of 140,000 vehicles, which could be expanded to 250,000 units a year. The first model manufactured as part of the venture will be the Fiat Linea compact sedan. The deal came after Fiat pulled out of its joint venture with the Nanjing Automoible Corp at the end of 2007 due to long-term sluggish sales and losses.

Fuel price fluctuations

China has adjusted domestic fuel prices eight times since last year - with five ups and three downs, according to fluctuations on the international oil market. In the latest move, the National Development and Reform Commission (NDRC) raised both gasoline and diesel prices by 480 yuan per ton on November 10. The benchmark price of gasoline now stands at 7,100 yuan per ton, while that of diesel is 6,360 yuan per ton, an all-time record high for both fuels. The country adopted a new fuel price mechanism in January last year, under which the NDRC will consider adjusting the benchmark retail prices of oil products when the international crude price charges more than 4 percent over 22 concurrent working days.

Massive recall

Toyota Motor Corp last August announced a recall of more than 688,000 China-made cars due to an electric window system problem, the biggest ever vehicle recall in the country. The recall affected 384,736 units of the Camry mid-sized sedan and 22,767 units of the subcompact Yaris. The two models are made by the Japanese carmaker's joint venture with the Guangzhou Automobile Group Corp. The recall also involved 35,523 units of the Vios and 245,288 units of the Corolla model, both made at Toyota's separate joint venture with the FAW Group Corp. No injuries were reported as a result of the window defect. However, the massive recall caused considerable damage to Toyota's reputation for reliability throughout China.