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      10-11-2018, 11:57 AM   #1
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BMW Takes Control of China Venture (Brilliance) With $4.2 Billion Investment

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BMW Takes Control of China Venture (Brilliance) With $4.2 Billion Investment
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Via Autonews

SHENYANG -- BMW said it will take majority control of its main China joint venture for 3.6 billion euros ($4.2 billion), the first such move by a global automaker as Beijing starts to relax ownership rules for the world's biggest auto market.

BMW will lift its stake in its venture with Brilliance China Automotive Holdings to 75 percent from 50 percent, with the deal closing in 2022 when rules capping foreign ownership for all auto ventures are lifted.

The move will likely spur BMW to shift more production to China, helping boost profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of BMW importing cars manufactured at its South Carolina plant.

The deal also marks a milestone for foreign automakers which have been capped at owning 50 percent of any China venture and have had to share profits with their local partner.

"We are now embarking on a new era," BMW CEO Harald Krueger said in a speech in the northeast Chinese city of Shenyang where the joint venture is based. He thanked Chinese Premier Li Keqiang who he said had "personally supported" the plan.

Beijing has been keen for global automakers to invest more in China, including easing restrictions that cap foreign ownership of electric vehicles businesses at 50 percent this year.

As trade tensions have escalated, China's government has also pledged to open up its markets more widely, including cutting taxes on imported vehicles, cancer medicines and a range of consumer goods.

Read the rest of the report at Autonews

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      10-11-2018, 12:03 PM   #2
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      10-11-2018, 12:14 PM   #3
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What will happen to the us plants? layoffs?
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      10-11-2018, 12:19 PM   #4
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Dadong will be sole production plant for iX3, wow.
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      10-11-2018, 12:57 PM   #5
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Harold looks less than thrilled.
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      10-11-2018, 02:30 PM   #6
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He lacks charisma in general.

This deal is a great thing, finally they are not forced to do what they never wanted. It's great that China is opening.
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      10-11-2018, 03:18 PM   #7
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Quote:
Originally Posted by waffle792 View Post
What will happen to the us plants? layoffs?
Brilliance-BMW builds cars that is almost all for Chinese domestic market. A lot of the cars themselves are Chinese-only models. Here's a list of cars that you likely didn't even existed:

BMW 1 Series (F52) (1.5 litre)
BMW 2 Series Active Tourer (F45) (1.5 litre)
BMW 3 Series (F30/35) (1.6 litre)
BMW 5 Series (G38) (2.0 litre)
BMW X1 (F49) (1.5 and Hybrid version)


The only BMW plant in the US is the South Carolina plant that makes most of the world's X series SUVs. At one point the US exported them to the rest of the world, but BMW has since built SUV plants in Egypt, Russia, Indonesia, Malaysia, and India. However, the vast majority South Carolina SUVs are for US/Mexico/Canada consumption. Yes we buy that many SUVs we are the single largest SUV buyer in the world.

The main reasons BMW and any international auto manufacture build in other countries are:
1. various laws in other countries regarding taxes on domestically produced cars (In China, a Brilliance-BMW built car is considered a domestic car and exempt from tariffs versus a M3 imported from Regensburg will have the full blunt of tariffs applied in China. This is no different with the "new" NAFTA and domestic content rules that exempt taxes on a Mexican Ford or a Canadian Toyota)

2. cheaper labor

3. minimize impact on exchange rates. - When Chinese buys BMWs, they pay with RMB. By manufacturing in China, they can use the RMBs directly into paying wages, parts, etc at Chinese factories. Remember, had all the cars been made in Germany for example, they would have to convert all the RMB to Euros, because European workers gets paid in Euros. We're talking about BILLIONS of foreign currency conversions here, which isn't free to do. You'll generally use financial instruments like forwards/future contracts (or hire a bank to manage it for you), to lock in your exchange rates, and these rates change all the time, so you end up losing money in the exchange process. If they pay Chinese workers/parts first, they have less to convert back to Euros. On top of it, China can simply decide to devalue the exchange rate for any reason, and that can easily just kill all your profit margins. This was the problem with Japanese electronics/cars for decades. The strong Yen killed profit margins when they had to reconvert all the profits back to Yen. So Japanese companies moved manufacturing to other free trade/floating exchange rate zones in the world where there were easier monetary policies and cheaper labor. Btw, the Yen floats, it was strong due to the interest rate carry trade. (All countries with floating currencies have exchange rates primarily affected by their central bank interest rates).


So to answer your question, so long as US buyers continue to buy X cars, and so long the rules for new NAFTA stays the same, there are no layoffs.
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      10-11-2018, 03:36 PM   #8
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While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
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      10-11-2018, 03:40 PM   #9
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Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
+1
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      10-11-2018, 03:46 PM   #10
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Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
Rich, coming from an american
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      10-11-2018, 03:47 PM   #11
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Originally Posted by Who? View Post
Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
Rich, coming from an american
Here we go...
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      10-11-2018, 03:48 PM   #12
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Quote:
Originally Posted by eDrive View Post
Harold looks less than thrilled.
probably realizes that it means more proprietary technology will be stolen the longer he continues building in China.

Quote:
Originally Posted by Laki021 View Post
He lacks charisma in general.

This deal is a great thing, finally they are not forced to do what they never wanted. It's great that China is opening.
Frankly, all this is a moot point. Sure, % ownership means you control decision making and a higher share of profits, but the Chinese government can easily just nationalize this any day they want.
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      10-11-2018, 03:53 PM   #13
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Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
People on internet, as ignorant as usual.
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      10-11-2018, 04:30 PM   #14
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Originally Posted by glennQNYC View Post
Quote:
Originally Posted by Who? View Post
Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
Rich, coming from an american
Here we go...
Couldve said the same about your comment
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      10-11-2018, 04:35 PM   #15
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sucks for the plant workers in south carolina. I know the BMW south carolina plant was the number of exporter of US produced automobiles in the United States for a long time. It's ironic in a trade war between the United States and China, the german auto makers get hit the hardest.
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      10-11-2018, 05:38 PM   #16
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Originally Posted by TemjinX2 View Post
sucks for the plant workers in south carolina. I know the BMW south carolina plant was the number of exporter of US produced automobiles in the United States for a long time. It's ironic in a trade war between the United States and China, the german auto makers get hit the hardest.
this makes no sense in the context of what's happening here. If anything, BMW is benefitting from the relaxing of the law in China...
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      10-11-2018, 06:08 PM   #17
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Brilliant
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      10-11-2018, 06:44 PM   #18
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Brilliant
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      10-11-2018, 06:56 PM   #19
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Quote:
Originally Posted by Who? View Post
Quote:
Originally Posted by glennQNYC View Post
Quote:
Originally Posted by Who? View Post
Quote:
Originally Posted by glennQNYC View Post
While this move isn't nearly as offensive as teaming up with the Third Reich; this is another shameful chapter for BMW. China is "on the wrong side" of human rights, liberty, freedom, to say nothing of intellectual property rights.
Rich, coming from an american
Here we go...
Couldve said the same about your comment
Yet, you took a different tack.

Like the US has anything to answer for in relation to communist China. What a foolish joke.
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      10-11-2018, 07:00 PM   #20
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Quote:
Originally Posted by TemjinX2 View Post
sucks for the plant workers in south carolina. I know the BMW south carolina plant was the number of exporter of US produced automobiles in the United States for a long time. It's ironic in a trade war between the United States and China, the german auto makers get hit the hardest.
The cars built in China is mainly for Chinese and other Asian consumption.

It makes no sense to manufacturer the cars in the USA and ship them to China. Labor is cheaper in China and BMW has a bigger profit on the cars as they have a larger margin on the Chinese made cars. It can also be sold cheaper to Chinese customers because there is no import tax on the Chinese made cars.

Try buying an imported car in China... even something as basic as a Toyota Corolla costs 2-3x the cost in China as it is in the USA. That's why Chinese customers who come to the USA think everything is so cheap. You can buy a luxury car for the price of a basic econo car in China!
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      10-11-2018, 08:01 PM   #21
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I'm kinda surprised how Americans interpret this and think all about the threat the rest of the world poses and look only at bad side of them.

It's really not that complicated - Beijing put a 50% maximum share restriction for foreign automaker in domestic market and now lifts it to promote investment and technology. BMW sees the benefit and wants to increase the share of the BMW-Brilliance as a highly profitable joint venture. BMW group even threatened to work with another Chinese company if Brilliance do not agree to sale of its share. The same drama is happening with VW/Audi and its Chinese local partner.

The impact on USA or the rest of the world? Minimal. Because imported cars in China are too insignificant. Plus Chinese have a very firm belief that the best cars are made in Europe. The most that get imported has a price tag starting from 500k rmb (73k USD). For example, M3 msrp is one million rmb (147k USD). These cars are for the top 0.01% richest, accounting for next to nothing in term of total sales.

BMW-Brilliance already produced SUVs, the long wheel base version of the new X1. And that is a heck of car, selling like hot cakes, it's literally bigger and more practical than old X3. That long wheel base X1 (44~66k usd) is the BMW SUV that gets sold in China. It's not made in USA either or not BMW holds 75% of BMW-Brilliance.

Will BMW make X5 in China? Let us Chinese worry about it. X5 starts from 750k rmb or 110k usd. Not many of them get sold actually. Even if they do get made in China, the sales are too small to have an impact on Carolina plant. And most of us only pay 500+k rmb for something that is not made in China.

BMW is not making M car and 7 series in China and ship them to USA. It'd lose them the entire global market. You guys easy. Not a single one of us agrees with that either.
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      10-11-2018, 08:13 PM   #22
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Quote:
Originally Posted by Z K View Post
The cars built in China is mainly for Chinese and other Asian consumption.

It makes no sense to manufacturer the cars in the USA and ship them to China. Labor is cheaper in China and BMW has a bigger profit on the cars as they have a larger margin on the Chinese made cars. It can also be sold cheaper to Chinese customers because there is no import tax on the Chinese made cars.

Try buying an imported car in China... even something as basic as a Toyota Corolla costs 2-3x the cost in China as it is in the USA. That's why Chinese customers who come to the USA think everything is so cheap. You can buy a luxury car for the price of a basic econo car in China!
Basic Corolla costs 107,800 yuan now in China, equal to 15646 usd. Its actually cheaper than in US but also lower equipped.
The misconception is half truth and half wrong. Car taxes are only high for luxury /imported/high-emission cars in China. For domestically produced non-luxury car with low emission, in the case of base corolla with 1.2 litre engine (I think this version not avaliable in states) the tax is 5% and included in the price (In china, tax was paid before sale directly from dealer instead of added after sale, so any price in china is after-tax price). The tax got higher proportionally for more expensive and higher emission cars. For example, an imported X6 35i would get around 110% tax in total. And higher for things like ferrari (or any performance car) which would be 2-3x or even higher as you said. But for basic family cars, the tax arent really high. And there is a huge rebate and grants for electrical and hybrid cars. Government would pay 50% for domestic full electrical non-luxury car plus tax exemption.

But still some people in China are still willing to buy imported variants for the same car even with higher price because imported cars usually have higher quality. In this regard, BMW-brilliance has a high reputation of producing cars quality matching the imported version. In comparison, the Mercedes-Beiqi has a very bad reputation of producing cars with much lower quality than imported. Mercedes-Beiqi even replaced all aluminum chassis parts with steel to cut cost, and often use terrible tires.

As the result the price of luxury and common cars in china are more divided. In US a mid size common car would not be cheaper than a small size luxury car. But in China almost any car from luxury brands would be more expensive than any car from common car brands. Thats why Chinese consumers found luxury cars are so cheap after moving to NA, you are not wrong in this statement. But at the same time I also found common cars are so expensive comparatively here.

Last edited by Cyanfall; 10-12-2018 at 04:36 AM.
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