FAW deals with uncertainty from corruption probe, slowing sales

By Chen Qingqing in Changchun Source:Global Times Published: 2015-6-22 18:33:01

As a major State-owned enterprise in Northeast China - the country's hub for heavy industry - China FAW Group Corp is seen as a major engine for revitalizing the region's aging industrial base. However, the company has its own challenges to deal with. It has been the subject of an anti-graft investigation as part of the government's ongoing campaign against corruption and has been hurt by a downturn in auto industry. On a recent visit to FAW's headquarters in Changchun, Global Times reporter Chen Qingqing looked into the challenges the automaker is facing. This is the first part of a two-part story.

Two workers operate a robot that installs windshields in vehicles at FAW Car Co in Changchun, capital of Northeast China's Jilin Province on June 8. Photo: Cui Meng/GT





Residents in Changchun, capital of Northeast China's Jilin Province, have a certain way of describing China FAW Group Corp, one of China's largest automakers.

"Instead of saying FAW is located in Changchun, we prefer to say Changchun is located in FAW," a 26-year-old Changchun resident said.

It is also the reason why Chang-chun is seen as the Chinese version of Detroit, considered the home of the US auto industry.

The foundation of FAW in 1953 was seen as the beginning of a new chapter in China's automobile manufacturing history, a PR representative, who preferred to be unnamed, told the Global Times on June 8.

Considering the sensitivity of the government's anti-graft campaign against FAW, most people interviewed in this article asked to remain anonymous.

FAW initially started producing trucks, but it now produces a diverse selection of vehicles such as automobiles, municipal buses and luxury limousines. The company's total assets are valued at 244.57 billion yuan ($39.44 billion), according to its website. It sells more than 18 million vehicles a year worldwide.

Over the last decade, FAW has invested more than 36.3 billion yuan in research and development (R&D), highlighting technological innovation, the PR representative said.

The company has 27 wholly owned subsidiaries and controlling shares in 20 partially owned subsidiaries, according to the UK-based International Federation of Automotive Engineering Societies.

Struggling under scrutiny

FAW sold 1.17 million automobiles from January to May, down 8.9 percent from the same period in 2014, showed data released Friday by the Beijing-based China Association of Automobile Manufacturers (CAAM).

In terms of total sales for the period, FAW lagged behind its major rivals Shanghai-based SAIC Motor Corp and Wuhan-based Dongfeng Motor Group Co.

Since the beginning of 2015, FAW has been the subject of inspections launched by central authorities after the company's executives were investigated for bribery.

"The media only reported that a few deputy general managers were investigated. However, more than 100 people involved in the scandal were investigated," a person close to the matter, who refused to be named, told the Global Times on June 8.

The person noted that the investigation is the reason why some senior FAW managers remain scrupulous.

It takes almost half an hour to drive from one factory to another in the FAW complex. Security guards check visitor and employee badges outside each facility.

"The new chairman Xu Ping has been visiting every one of FAW's subsidiaries and factories since he arrived in Changchun," the person said. "It will take some time for him to figure out a new way to manage the company."

Xu Ping, the former chairman of Dongfeng Motor Group, took charge of FAW on May 7. He is likely to be seen as part of the anti-graft investigation into FAW, the person said.

Xu Ping took over FAW after authorities began investigating former chairman Xu Jianyi on corruption charges in March, according to media reports.

However, Xu Ping has not publicly announced which direction the company is heading in.

"He is still doing research, and we don't have any information to share with the public at present," the PR representative said.

Xu Ping has asked all the senior managers to report whether they or their relatives own shares in the company's subsidiaries or operate any FAW-related sectors such as automobile dealerships, the Xinhua News Agency reported in May. Senior managers involved in these businesses have to step out by the end of June.

"Xu will come up with stronger measures because the company needs to revamp its management system to stay competitive," said a retired senior director who preferred to be unnamed.

The director had worked for FAW for more than 30 years.

Slowing sales

FAW has to evolve not only as a State-owned enterprise but also as one of the country's major automakers, Jiang Xuewei, an analyst from Beijing-based China Investment Consulting, told the Global Times Friday.

For about 13,714 automobile manufacturers recording over 20 million yuan in annual revenue, the average growth rate in revenues declined in 2014 compared with the number in 2013, according to data released by the CAAM in February. The number of automakers that recorded losses in their business increased in 2014, as the data showed.

Jiang noted that China's automotive industry has been heading for a slowdown since 2010.

"Many customers have already purchased a first, entry-level car and they are ready to upgrade to a newer and better models," Jiang said, indicating that customers' evolving tastes make the automotive industry a much more demanding environment.

Local governments have introduced regulations on car usage due to worsening traffic conditions and environmental concerns. These regulations are also reshaping the automotive industry, Jiang said, noting that developing environmentally friendly vehicles is becoming a new requirement.

"Some automakers have also been aware of an Internet-oriented car industry. For example, SAIC has teamed up with Alibaba to develop an Internet-connected car by the end of 2016," he said. "FAW seems to be less sensitive to those changes."

In 2011, FAW announced it would invest 9.8 billion yuan in electric car production, according to the company's website. By the end of 2013, the company had sold about 700 new energy vehicles in eight cities, as the website shows.

In addition to its electric car strategy, FAW has been focusing on brand development.

"For example, FAW kicked off a Hongqi revival plan in 2008 in hope of increasing the brand's popularity in the commercial vehicle sector," the PR representative said.

Hongqi, a symbolic brand owned by FAW, has been known as the car for senior officials before 1980s.

Still, analysts and people familiar with the matter doubt whether the automaker has the capability to develop its own brand, especially because FAW-Volkswagen - a joint venture between FAW and Volkswagen, which has been logging rising sales in recent years - is now considered the pillar of FAW, a person familiar with the matter, who preferred to be unnamed, told the Global Times on June 9.
Newspaper headline: Shifting gears


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