Daimler will buy 12% stake in Beijing Auto's car unit
Daimler CEO Dieter Zetsche and BAIC Chairman Xu Heyi agreed to deepen their companies' ties.
Daimler AG will pay 640 million euros for a 12 percent stake in the car unit of Chinese partner Beijing Automotive Group and get two seats on the board, the German company said on Friday.
The deal, which is expected to close by the end of this year or in early 2014, is part of Daimler's effort to catch up with competitors in the world's largest auto market.
The investment is "significant so that both companies can actively participate in the opportunities of the Chinese automotive market," said Dieter Zetsche, Daimler CEO and head of the Mercedes car business, in a statement.
Zetsche has vowed to have Mercedes-Benz retake the top spot in worldwide luxury-vehicle sales by the end of the decade. Mercedes lost the No. 1 spot to BMW in 2005 and slipped to third behind Audi in 2011.
China plays a key role in Zetsche's strategy after Mercedes lagged behind BMW and Audi in sales growth in the country last year. Mercedes deliveries in China rose 1.5 percent to 196,211 cars in 2011. Audi posted a 30 percent jump, selling 405,838 vehicles. Deliveries by the BMW brand in the market surged 40 percent to 303,169 cars.
"It's a long-term investment which secures Daimler an exclusive access to the partner," said Christoph Stuermer, a Frankfurt-based analyst with research company IHS. The board seats will allow Daimler to have a say at the partner and start negotiating projects at an early stage, he said.
As European industrywide auto sales head into a sixth consecutive year of decline, German luxury carmakers are looking abroad for growth opportunities.
The Chinese market has become increasingly important for earnings as buyers tend to opt for fully loaded upscale vehicles, resulting in higher returns for the manufacturers.
As part of the Daimler transaction, BAIC is increasing its holding in the partners' production joint venture in China to 51 percent from 50 percent. Owning the majority of Beijing Benz Automotive Co., which produces the Mercedes C- and E-class sedans and GLK sport-utility vehicle, adds to the value of BAIC's auto unit, which is planning an initial public offering.
BAIC, which also makes vehicles with Hyundai Motor Co. in China, is looking at an IPO in Hong Kong for the unit, possibly this year, with a target of raising about 10 billion yuan ($1.6 billion), Chairman Xu Heyi said in September.
Daimler's push to expand in China includes the establishment in December of a management-board position dedicated to the country. The company assigned Hubertus Troska, formerly head of the Mercedes-Benz trucks business, to the post.
Daimler and BAIC have also set up a jointly owned sales organization, which combines previously separate marketing of imported and locally produced cars. Daimler will increase its stake in the sales company to 51 percent from 50 percent.
Bloomberg News and Reuters contributed to this reportContact Automotive News