Major Merger in China’s Automotive Industry: Dongfeng and Changan

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Strategic Merger Discussions Between Dongfeng Motor and Changan Automobile

In a significant development within China’s automotive industry, two of the nation’s largest state-owned car manufacturers, Dongfeng Motor and Changan Automobile, are engaged in advanced discussions regarding a potential merger. This merger aims to create a powerful entity renowned for producing both civilian cars and military vehicles. However, it also introduces potential challenges for their American and Japanese partners.

According to two individuals with detailed knowledge of these talks, who were not authorized to speak publicly, both companies have been in-depth discussions on how to effectively combine their operations. They have also informed their foreign partners about their intentions.

Despite their relatively low profile outside China, each of these manufacturers produces a comparable number of vehicles under their own brands and through joint ventures to global automotive giants such as Mercedes-Benz and BMW. Collectively, Dongfeng and Changan manufacture approximately 5 million vehicles annually, surpassing Ford Motor and nearly matching the output of General Motors or Stellantis, the automotive conglomerate that owns Fiat, Chrysler, and Peugeot.

Implications and Strategic Goals of the Merger

The proposed merger represents a significant consolidation of China’s automotive market, the largest in the world, and it further illustrates the country’s swift adoption of electric vehicles. Currently, both companies possess far more manufacturing capacity for gasoline-powered cars than necessary.

Beijing is optimistic that the merger will allow the combined entity to close down excess gasoline car factories and redirect resources towards achieving greater success in the electric vehicle sector.

The Chinese national government holds controlling stakes in both Dongfeng and Changan. Given Dongfeng’s role as a leading supplier of military vehicles to the People’s Liberation Army and Changan’s status as a subsidiary of a Chinese military contractor, this merger could attract unwanted scrutiny from the U.S. administration, particularly due to the implications of a larger military supplier and its joint venture partners.