Manufacturing News

Can Ford, Mazda untangle themselves from China's regulatory web?

A four-day workers' strike at an obscure state-owned Chinese automaker may sidetrack a bid by Ford and Mazda to reorganize their joint venture with Chongqing Changan Automobile Co.

The work stoppage does not involve any Ford plants or operations. Yet it shows how China's new limits on foreign automotive investment -- aimed at newcomers to China -- could hobble established players, too.

The dispute began when workers at microvan maker Jiangxi Changhe Automobile Co. went on strike to protest a proposed consolidation by Changhe's corporate parent, Chongqing Changan Automobile Co.

In 2009, China's reform-minded central government had ordered Changan to acquire Changhe, which was unprofitable.

Last week, word filtered out that Changan was planning to kill the Changhe brand. Moreover, the two joint ventures that Changhe and Changan had with Suzuki Motor Corp. were supposed to be merged.

Workers feared a merger would cause many of them to lose jobs, so they staged a walkout. The strikers quickly won support from local officials in the city of Jingdezhen in east China's Jiangxi province, where Changhe is headquartered.

The municipal and provincial governments view auto manufacturing as a pillar of their region's economy, so they petitioned China's central government on behalf of the striking workers.

Beijing, which was eager to maintain social stability ahead of the Chinese New Year holiday, vetoed the proposed consolidation of Changhe's operations.

To Changan's chagrin, Suzuki's two joint ventures with Changan and Changhe will not merge anytime soon.

Unintended consequences

How does this affect Ford Motor Co. and Mazda Motor Corp.?

Changan wants to break its three-way joint venture, Changan Ford Mazda Automobile Co., into separate two-party joint ventures -- one with Ford and the other with Mazda.

This breakup will lead to the creation of an extra joint venture. Under existing regulations, the Changan-Ford partnership can inherit the former three-party venture's license.

But Changan-Mazda will need a new license. And that's where things get sticky.

In a bid to prevent excess production capacity, Beijing recently announced it would not allow foreign automakers to form new joint ventures.

To circumvent this restriction, Changan decided to merge Changhe Suzuki with Changan Suzuki, then transfer the extra license to its planned joint venture with Mazda.

But after the strike at Changhe, Beijing blocked Changan's attempt to transfer the license.

This means that Ford and Mazda will have to stick, at least for a while, with their inefficient three-way partnership with Changan.

Ford and Mazda have ambitious plans to expand in the world's largest auto market. But the complexities of the new rules are holding them back.

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