Mitsubishi, GAC Sign Joint Venture MOU, to Build ASX Compact SUV

On 5 Nov. Guangzhou Automobile Group (GAC) (2238.HK) signed a memorandum of understanding with Mitsubishi Motors Corp (7211.T) on establishing a passenger car joint venture. The new venture, GAC-Mitsubishi, would arise through restructuring the existing Mitsubishi-GAC-Changfeng partnership, GAC Changfeng (600991.SS).

The plan, to be further worked out and ratified by the government, looks like a perfect solution to Mitsubishi’s biggest challenge in China: finding a local partner who is able but not controlling.

At present the Japanese automaker has two vehicle-making ventures in China–through the SUV maker GAC-Changfeng (with GAC and Changfeng) and the sedan/minivan maker Soueast Motors (with Fujian Auto and Yulon China). Both are dwarfs when compared with major Sino-Japanese JVs like GAC-Honda, GAC-Toyota, Dongfeng-Nissan, FAW-Toyota. And Mitsubishi has only small minority stakes in them, owning 14.59% of GAC-Changfeng and 25% of Soueast Motors.

The Chinese government requires all foreigner companies have local partners to build or assemble automobiles in China, but limits the number of joint ventures each of them can have to two in either the passenger or commercial vehicle sector (so that at most a foreign company can have four vehicle-making ventures in China: two for passenger cars and two for buses, trucks and vans). For Mitsubishi, this means it cannot have new partnerships before it ends the old.

According to the announced arrangement, Changfeng Group would withdraw and sell its 21.98% stake in GAC-Changfeng to GAC, thus making way for the GAC-Mitsubishi alliance, a venture to be equally owned by either side. In return, the newly engaged promise to make huge investment in Changsha, Hunan, where Changfeng Group is based.

As a SUV maker, GAC-Changfeng’s main products have been Mitsubishi Pajero and Changfeng Liebao (which is built using Mitsubishi technology), both of which will stay after the planned restructuring.

mitsubishi asx

According to a reliable Chinese media source, the first all-new model to be launched by GAC-Mitsubishi will be the ASX compact SUV (called Outlander Sport in the U.S.), which is likely to be followed by Outlander EX.

The imported ASX went on sale in China in late August 2010, available in five 2.0L versions. Due to relatively high prices (183,800-239,800 yuan), it is expected to sell only 15,000 units a year. A top Mitsubishi official projects that ASX sales can easily top 60,000 a year after local production begins.