Manufacturer takes bold steps to reboot itself and revitalize its brands in competitive market

Chery Automobile Co has decided to trade its controlling stake for at least 20 billion yuan ($3.12 billion) as part of efforts to reboot itself in an increasingly competitive Chinese market.

The proposal was unanimously approved at the cash-strapped State-owned carmaker's workers' meeting on Tuesday because of a "pay rise promise" and hopes of a turn in the company's fortunes for the better, according to Chinese-language newspaper Securities Daily.

Last year, Chery's total deliveries in China fell 3.5 percent year-on-year to 680,000 vehicles, a far cry from its sales target of at least 900,000 units.

Its net profit in the year stood at 264 million yuan, some 60 million yuan less than the previous year. Its debt hovered at around 61.2 billion yuan by the end of 2017, up 7.33 percent from the previous year.

Established in 1997, Chery was once a popular carmaker in the country, becoming the first Chinese manufacturer to produce 1 million vehicles annually in 2007.

However, its sales have been falling since 2010 because of much more intense competition in the market and the poor positioning of its offerings. Chinese magazine Caixin said Chery's debt-to-asset ratio has hovered at around 75 percent over the past few years, while analysts said the percentage should stay between 40 and 60 percent for most usual automakers. The stake-for-cash deal is expected to be sealed in June, but Chery's largest shareholder so far, the government-controlled Wuhu Construction Investment, will retain veto powers to ensure the company does not move operations out of the province, according to Caixin. Its other two shareholders are Wuhu Ruichuang Investment owned by Chery Chairman Yin Tongyue and Huatai Securities, which was shown to become a shareholder two months ago, according to the National Enterprise Credit Information Publicity System.

Analysts say that Chery's plan to introduce investors is in line with the National Development and Reform Commission's announcement in late May that it supports State-owned and private carmakers to attract investors and partners to become competitive.

They say that it is a good thing if Chery can obtain the much-needed capital but that will not ensure its revival, which depends on a number of factors ranging from the shuffle of the management team to, more importantly, its product plans.

Several companies have shown interest in the floundering carmaker including property and insurance conglomerate Baoneng Group, investment firm Fosun International Ltd and Sichuan province-based liquor maker Wuliangye.

Baoneng, who now holds a 51 percent stake in Chery's joint venture Qoros, has been investing big in the automotive industry, with a special focus on the booming electric vehicle sector, setting up facilities to build cars and components in the country.

Earlier this year, Baoneng Chairman Yao Zhenhua vowed to invest 10 billion yuan a year in research and development for at least the next five years, a figure that is similar to the level invested annually by China's largest car group SAIC Motor.

But chances have become slim for Baoneng, despite an offer of over 25 billion yuan, because the Anhui government would prefer a "simpler" investor, Caixin quoted sources as saying.

The Anhui government believes bringing in Baoneng could complicate Chery's management structure, making the automaker "hard to control" in the future, sources told Caixin.

Earlier this year, Wuliangye and a government-owned automotive investment company acquired the controlling stake for Chery's low-end brand Cowin for 2.49 billion yuan.

An analyst who would like to remain anonymous said the liquor maker is unlikely to become the investor as well, as local authorities will be prudent in approving of a deal worth up to 25 billion yuan with a company that does not show signs of good return.

Besides Qoros and Cowin, Chery produces and sells cars under Chery and Jetour brands. It also has a joint venture in China with British carmaker Jaguar Land Rover.