China auto dealers set for M&A drive

When car dealer China Grand Automotive bought its luxury rival Baoxin for $2.7 billion in June, it was trying to make the most of a difficult outlook in its sector.
 
The acquisition was at least partly motivated by a drop in new car sales, a rarity for a market that has been growing year after year. China Grand Automotive is the biggest player in a crowded sector, so consolidation appeared the natural response.
 
But until this week, investors did not have the chance to react to the merger. Baoxin Auto’s stock has been suspended for three months, giving its former CEO time to sell down his stake to comply with free-float rules. The stock started trading again on Wednesday — and promptly dropped by 48%.
 
That performance, while bad news for investors, is unlikely to deter other companies in China’s auto dealership sector from merging.