Chinese auto manufacturer Chery, suffering from the current hard economic times, has started laying off employees and freezing development of some new models.
The state owned company, controlled by the Wuhu city government in Anhui province, admits that whilst such extreme measures have improved its cash flow in the immediate term, long term growth may only come by privatising the company and putting a halt to its so-called “reckless expansion”.
Since establishing itself in 1997, Chery has produced over one million vehicles ranging from small cars to SUVs with a planned expansion in to light commercial and luxury vehicles on the drawing board.
This aggressive pursuit of scale however has stretched Chery’s limited resources to breaking point with supplier sources saying Chery’s cash flow is always tight. Unable to fund new projects with earnings, the company relies heavily on bank loans for financing.
Auto manufacturing is becoming increasingly competitive in China, though state-owned companies are typically slow to respond to changing market needs and conditions. It is considered that privatising Chery can be done through stock listing, management buyout or taking on private shareholders.
Chery has been planning to issue shares on the domestic stock exchange for sometime now, and with the bear stock market in China stalled, privitisation is becoming not only a consideration, but a necessity.
Compared to other Chinese automakers who produce their own brands, Chery has been more severely hurt by weak markets in and outside China with sales down 9 percent year-on-year, or below 275,000 units.
Privitisation is a big step for Chery and one certain to change the face of Chinese automotive industry.