Dongfeng and Changan merger rumors emerge
On February 9th, multiple companies under the Dongfeng Motor Corporation (such as Dongfeng Motor Group and Dongfeng Honda) and China South Industries Group (CSGC, parent company of Changan Motors) simultaneously announced they are in discussions with other state-owned enterprises (SOEs) regarding restructuring.
The simultaneous announcements, however, emphasized this will not lead to a change in corporate ownership, though some controlling shareholders may change. The ultimate controlling shareholder will remain the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the government-run SOE controller.
Merger Speculation and Challenges
This annoucement has sparked widespread speculation in the industry. The timing of the announcements from the two major state-owned auto manufacturers raises rumors of whether a merger is on the horizon. A combined Dongfeng-Changan entity would likely see sales of over 4.5 million vehicles annually, overtaking BYD.
This restructuring of Dongfeng and Changan aligns with SASAC’s recent efforts to optimize state-owned enterprises. SASAC stated in 2024, they aim to reduce internal competition and aim for specialization focusing on specific sectors with the companies they manage.
A full merger would face challenges, however, as Dongfeng and Changan have different ownership structure where Dongfeng operates as an independent SOE, while Changan falls under control of the munitions, autos, and electronics manufacturer CSGC. Such a massive restructuring would also require a re-organization of not only the manufacturers themselves, but also their investments and subsidiaries.
Additionally both Dongfeng and Changan have strong brand history and overlaps with their product lines in terms of price range. A merger could lead to internal competition and brand cannibalization. Management structures would also need to be integrated, adding to the already complex capital restructuring.
It has been speculated a full merger may not be the end goal as the two companies may aim for an “alliance model”. This could involve strategic cooperation in areas such as R&D, supply chains, and international expansion, allowing each company to retain independence. A relevant example is the Renault-Nissan-Mitsubishi Alliance, a model that helps reduce costs while preserving brand identity.
Looking back to 2024
Looking back at 2024, neither Dongfeng nor Changan achieved their previously set sales targets.
Changan Auto had set a 2024 sales target of 2.8 million vehicles. According to production and sales reports, Changan’s total sales for 2024 reached 2.68 million units, still achieving a 14.79% year-on-year increase. For 2025, Changan Auto aims for total sales of 3 million units, a 12% year-over-year growth, with 1 million NEV sales and 1 million exports.
Meanwhile, Dongfeng Group had set a 2024 sales target of 3.2 million vehicles. However, actual sales data showed that Dongfeng’s total sales for the year stood at 1.89 million units, down 9.2% year-over-year. The company set an ambitious 2025 target of 3 million sales, with an ideal goal 3.2 million. This includes NEV sales exceeding 1 million and overseas exports surpassing 500,000.
Dongfeng has particularly struggled with its joint venture brands with Dongfeng Nissan and Dongfeng Honda down 12.7% and 29.2% year-over-year respectively. Dongfeng’s self-owned brands have been a bright spot, however, and most of the company’s growth has come from self-branded NEVs.
Restructuring does not immediately impact normal production and business operations, however, given the reform in the works for state-owned enterprises, these moves entail a broader push for efficiency in SOEs.
As China’s auto industry faces intensifying competition, SOEs are increasingly under pressure to survive the transition to NEVs. As private entities such as BYD and Huawei’s Harmony Intelligent Mobility Alliance (HIMA) see growth and expand overseas, SOEs will need to enhance their competitiveness.
