Guangzhou Auto reborn from Peugeot's one-franc exit into Honda's equal JV partner

Guangzhou Peugeot, one of China's first car joint ventures, collapsed slowly: by 1996 the fields around the factory held thousands of unsold cars, and the venture owed about RMB 500 million to Peugeot for unpaid parts, with more owed to the city. After state planners pushed Guangzhou to take over, Peugeot sold its stake for one French franc and the venture closed in October 1997.

The city kept the assets and regrouped them under Guangzhou Automobile Group (GAGC). Central planners vetoed a tie-up with Opel and pointed Guangzhou at Honda, which already ran a motorcycle venture in the city. On May 13, 1998, GAGC and Honda founded a 50:50 car joint venture — an equal partnership, unlike Peugeot's — and the updated former Peugeot plant started building the sixth-generation Accord and the Odyssey MPV in 1999.

The Accord became one of China's definitive business sedans. A decade later GAC's passenger-vehicle business was a profit machine: in the first half of 2010 its Camry sales rose 15.2% to 81,337 units and the Accord stayed at the top of the mid-to-high-end sedan market, while cost controls pushed gross margin higher. In August 2010 the group issued H shares and folded in its Denway subsidiary in a single restructuring listing, creating today's listed GAC.

By 2010 Accord and Camry led China's mid-to-high-end sedan market, and GAC completed an H-share listing folded with Denway in August 2010.

The city refused to let the plant die: keeping the license, site and workforce meant the next partner could start production within a year instead of from scratch.

A 50:50 structure with one model at a time (Accord first) concentrated capital and management attention instead of scattering it across cheap, dated products as Peugeot had.

Honda arrived with a current-generation car and its own dealer know-how, so the venture sold out of a product officials actually wanted to buy rather than a taxi-and-government leftover.

Central planners' insistence on a proven brand mattered: Opel was rejected for lacking pedigree, and the Accord's premium image is what made the venture worth copying with Toyota in 2004.

A failed joint venture is not a dead end if the local owner keeps the license, land and workforce and spends them on a better partner under an equal 50:50 structure.

GAC rode its Japanese ventures to become China's No. 6 domestic automaker, though the 2011 Japan earthquake showed the risk of that concentration: first-half 2011 net profit fell 26% to RMB 1.72 billion on disrupted parts supply, and president Zeng Qinghong still guided 2012 group sales up about 5%. The group later added Fiat-Chrysler, Mitsubishi and its own Trumpchi and Aion brands on the foundation the Honda venture built.