Introduction

On February 9, 2025, the Chinese automotive landscape witnessed a historic milestone: Changan Automobile and Dongfeng Motor Group jointly announced plans for a strategic reorganization, positioning both central enterprises as titans in the industry.

While the reorganization is still in its nascent stages, the news has already rippled through the entire sector, stirring up anticipation and discussion.

Should this union succeed, the resultant entity would boast annual sales exceeding 5 million vehicles, solidifying its position as the world's fifth-largest automaker, trailing only Toyota, Volkswagen, Hyundai Kia, and Stellantis Group.

This reorganization transcends the fate of just two companies; it has the potential to fundamentally reshape the Chinese automotive industry.

Today, Unmanned Vehicle Approaches (WeChat Official Account: Unmanned Vehicle Approaches) delves into the rationale behind this central enterprise reorganization and its potential future impact.

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("On February 9, Dongfeng and Changan simultaneously announced that their indirect controlling shareholders, Dongfeng Group and China South Industries Group, are planning a reorganization")

I. Dongfeng: Why Did the Once "Profit Cow" Stall?

Dongfeng Motor's roots trace back to the Second Automobile Works (commonly known as "Second Auto"), established in 1969, which once set the benchmark in China's heavy truck manufacturing industry.

In 1975, Dongfeng successfully launched its independently developed two-and-a-half-ton off-road vehicle, marking a significant milestone in China's ability to design and manufacture automobiles independently.

Since then, Dongfeng has witnessed rapid growth, amassing cumulative sales of nearly 60 million vehicles and total assets exceeding 500 billion yuan.

However, as the new energy era dawned, Dongfeng's former glory appeared to wane.

In 2023, Dongfeng Group incurred a staggering loss of 4 billion yuan, with its joint venture brands faring even worse: Dongfeng Nissan sales plummeted by 53% year-on-year, Dongfeng Honda by 54%, and Dongfeng Peugeot Citroen sales dwindled to less than 70,000 vehicles.

These once profitable joint venture brands have now transformed into a performance-dragging burden.

Despite Dongfeng's forays into the new energy sector and the launch of high-end brands like Voyah, its market performance has remained underwhelming.

Amidst the surge of private enterprises like BYD and Tesla, Dongfeng seems to be lagging behind.

II. Changan: Soaring Sales, But Profits "Halved"

In contrast to Dongfeng, Changan Automobile's performance presents a stark contrast.

As a "living fossil" of China's automotive industry, Changan Automobile's history can be traced back to the Shanghai Foreign Artillery Bureau founded by Li Hongzhang in 1862.

In 1984, Changan ventured into the civilian automobile market with its first batch of mini trucks produced through technology and trade cooperation.

In the realm of new energy, Changan demonstrated remarkable foresight.

As early as 2001, Changan established a new energy research institute and unveiled the "Shangri-La Plan" in 2017, comprehensively deploying strategies for new energy and intelligence.

In 2022, Changan introduced two new energy brands, Deep Blue and AITA, catering to the low to high-end markets.

In 2024, Changan's annual sales surpassed 2.68 million vehicles, marking five consecutive years of positive growth and a new high in the past seven years.

Yet, behind this sales surge lies a disheartening "halving" of profits. In the first half of 2024, Changan's net profit declined by 58.19% year-on-year to 6.733 billion yuan, pale in comparison to Great Wall Motor's 377.49% growth to 43.626 billion yuan in net profit.

Netizens quipped: "Sales far exceed Great Wall, but profits are less than half."

Changan's profit decline is intrinsically linked to its aggressive pricing strategy.

For instance, popular models like Changan CS75 PLUS and UNI-V witnessed a sharp decline in profits amidst BYD Qin's "price war," even incurring negative profits in some cases.

Similarly, the two new energy brands, Deep Blue and AITA, resorted to "trading price for volume," yet the results were still unsatisfactory.

III. Reorganization Speculation: How to Forge a 5 Million Vehicle "Giant"?

Should Dongfeng and Changan successfully merge, the new entity's annual sales would exceed 5 million vehicles, with a workforce exceeding 220,000, catapulting it to the world's fifth-largest automotive group.

This reorganization not only aligns with the national policy of "concentrating state-owned capital in important industries" but also ignites fresh imagination for China's automotive industry.

In terms of brand integration, both Dongfeng and Changan boast numerous independent brands, such as Dongfeng's Mengshi and Voyah, and Changan's AITA and Qiyuan. Post-reorganization, smaller brands may be amalgamated, reducing the total number of brands to less than five.

In the commercial vehicle sector, Dongfeng and Changan each hold their own advantages.

Dongfeng dominates the heavy and light commercial vehicle markets, with sales reaching 385,400 vehicles in 2024, ranking second in the industry.

Meanwhile, Changan Kaicheng ranks third in the light commercial vehicle market with sales of 340,000 vehicles. Post-reorganization, the new company is poised to overtake Foton and emerge as the "new overlord" of the commercial vehicle market.

In the realm of new energy and intelligence, Changan's expertise may infuse new vitality into Dongfeng. For instance, Changan AITA, with Huawei's in-depth support, has excelled in intelligence.

Post-reorganization, AITA's technology and experience are expected to be integrated into Dongfeng's Voyah brand, bolstering its market competitiveness.

IV. Central Enterprise Reorganization Wave: From "Division" to "Integration"

The reorganization of Dongfeng and Changan is not an isolated incident.

In 2024, central state-owned enterprises (SOEs) and state-owned enterprises frequently underwent reorganizations: AVIC Electric Measurement acquired Chengdu Aircraft Industrial (Group) Co., Ltd., China State Shipbuilding Corporation merged with China Shipbuilding Industry Corporation, and Guotai Junan Securities planned to merge with Haitong Securities. These events marked a new pinnacle in the integration of central SOEs.

According to Capital IQ Consulting data, from January to early July 2024, the number of state-owned enterprise integration and reorganization events surged by over 120% year-on-year. This trend underscores the country's clear directive to optimize the layout and structural adjustment of the state-owned economy.

Taking the automotive industry as an example, as market competition intensifies, central enterprises face unprecedented challenges.

Historically, central enterprises have been industry leaders, but in the new energy sector, private enterprises like BYD and NIO have gradually taken the lead.

The aim of central enterprise reorganization is to enhance industrial concentration, bolster competitiveness, and mitigate resource waste and internal vicious competition.

V. Future Outlook: The Great Change Has Just Begun

The reorganization of Dongfeng and Changan is merely a microcosm of the transformative changes occurring in China's automotive industry.

According to Gasgoo Auto Research Institute statistics, there are currently 121 local brands on the market, with about 50 experiencing average monthly sales of less than 3,000 vehicles. The fate of these low-sales brands is inevitable consolidation.

In the future, the reorganization of central enterprises will focus on three key aspects:

Firstly, establishing new companies to fortify central enterprises' position in crucial industries;

Secondly, optimizing resource allocation to avert internal vicious competition;

Thirdly, fostering deep integration of business, personnel, and culture to genuinely harness the synergetic effects of mergers.

As former Bosch China President Chen Yudong noted: "In the next 10 years, 'closures, mergers, and transfers' will become the norm in the industry."

Against the backdrop of an evolving automotive market landscape, the wave of integration is accelerating.

Whether between central enterprises or between central and local state-owned enterprises, reorganization will be the dominant theme of future development.

In summary, Unmanned Vehicle Approaches (WeChat Official Account: Unmanned Vehicle Approaches) believes that the reorganization of Dongfeng and Changan is not merely a corporate integration but also a self-innovation of China's automotive industry. It signals that China's automotive industry is poised to usher in a new round of reshuffling and upgrading!

Dear readers, what do you think?