Photographer: Tomohiro Ohsumi/Bloomberg

China's Biggest Car Dealer in Talks to Buy Stake in Baoxin

Updated on
  • Baoxin shares surge in Hong Kong trading after announcement
  • More mergers and acquisitions seen among dealers, analyst says

China Grand Automotive Services Co., the country’s biggest publicly traded car dealership group, said it is in preliminary talks to buy the largest domestic distributor of BMW AG vehicles, as a sales slowdown pushes more retailers to merge or be acquired.

Baoxin Auto Group Ltd. surged 36 percent to HK$3.51 in Hong Kong, the biggest gain on record, after China Grand Auto said it will pay a refundable HK$50 million ($6.45 million) deposit. China Grand Auto’s shares remain suspended in Shanghai.

New-car sales in China may decline for the first time in more than a decade this year, as a slowing economy combines with a clampdown on lavish spending, stricter registration limits and stock-market volatility. The slowdown and unprecedented discounts dragged on the eight Chinese car dealers trading in Hong Kong, with combined net income falling by 29 percent in the first six months.

“We will probably see more M&A activity in this space, either high-profile ones like this or small ones that will likely fall under the radar,” said Steve Man, an autos analyst at Bloomberg Intelligence. “Dealer groups aggressively built new stores in the past few years not expecting that the slowing economy and the clampdown on graft would curb luxury auto sales as much as it has.”

China Grand Auto’s shares have gained 66 percent this year before Wednesday, even as first half net income declined 14 percent. Baoxin’s stock has fallen 42 percent and net income dropped 27 percent in the first six months.

Baoxin Auto said in a Hong Kong exchange filing that no terms have been agreed.

(An earlier version of this story was corrected for China Grand’s share price.)