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Piaggio strikes deal in China

May 10, 2004
Filed under Features

Italy’s Piaggio & Co. SpA and the Chongqing Zongshen Motorcycle Group, China’s largest non-governmental maker of motorcycles and components, recently signed an agreement to collaborate on the production and sale of scooters, engines and related products, a deal expected to eventually generate an annual turnover of $215.1 million to $239 million.
The agreement, reached April 15, after 32 months of negotiations, produces a venture named Foshan Zongshen Piaggio Motorcycle Co. Ltd., based in Foshan, in South China’s Guangdong Province.
Piaggio’s original joint venture in China, Piaggio Foshan Motorcycle, was set up in the mid1990s with a local government company in Guangdong province, but has lost approximately $60 million since it was formed.
Under the reorganization plan, Zongshen will gain a 45% stake in the joint venture in exchange for guaranteeing repayment of an undisclosed amount of the joint venture company’s debt; it will also use its own guarantee to arrange bank loans for new investments to be undertaken by the joint venture. Piaggio in turn will license advanced technology to a Zongshen Group-owned motorcycle engine company that will sell engines to the joint venture. Piaggio unveiled plans to produce as many as ten scooter models through the restructured joint venture, and also plans to expand its outsourcing of parts production.
With registered capital of $29.8 million, the new company is expected to produce 100,000 scooters this year, and as many as 300,000 units per year within three years — nearly two-thirds as much as Piaggio’s global shipments last year — for revenues of approximately $214 million to $238 million.
The products manufactured by PFM will be marketed in China by PFM itself (in some cases under Piaggio brands) through the Zongshen dealer network; international marketing, under the Piaggio brands, will be handled by Piaggio.
Financier Roberto Colaninno, through a Milan-listed firm called Immsi, bought the majority share of Piaggio in October 2003. The company recently revealed its 2003 sales were approximately $1.2 billion on the back of 430,000 vehicles.
The Chongqing Zongshen Motorcycle Group has 52 fully invested or share-holding subsidiary companies, with total assets exceeding $480 million. Zongshen motorcycles are sold at approximately 4,000 locations around China. Sales of its motorcycles, engines, high-speed boats and other machinery last year totaled approximately $995.6 million.
Zuo Zongshen, the 51-year-old leader of the Zongshen Group, will oversee the joint venture’s day-to-day operations. Forbes list of China’s 100 Richest People last year ranked Zongshen No. 67 with a net wealth of $150 million.
“This is a strategic alliance on one of the world’s fastest growing markets, where we intend to establish a manufacturing operation to enhance the competitiveness and visibility of the Piaggio Group,” said Roberto Colaninno. “The new joint venture provides Piaggio with a base for international business expansion, especially in the Far East, a key growth area in the Group business plan.”
“The size and the competitive scenario of the Chinese market, and the profile of our partner, provide a solid basis for the successful achievement of the joint venture’s goals and the improvement of Piaggio’s consolidated cost positioning,” said Rocco Sabelli, Piaggio Group Chief Executive Officer. “The agreement is a major initiative for Piaggio, and will help us strengthen our international reach and reaffirm the traditional strengths of an Italian product on a market with a highly distinctive approach to products and marketing policies.”
The agreement sparked debate in Italy, where Piaggio workers reportedly protested the deal on April 16, citing the possibilities of becoming redundant. Italian news service ANSA reported representatives from Italian trade unions Cgil, Cisl and Uil met with the mayor of Pontedera, central Italy, Paolo Marconcini, to discuss the worries of Piaggio’s workers in the region.
In other Piaggio news, Powersports Business has learned Piaggio USA plans to offer its Beverly 200 scooter to the New York City Police Department for use during the Republican National Convention, Aug. 30 to Sept. 2. According to published reports, the Manhattan police headquarters will receive 300 of the units modified to NYPD specifications. The department currently operates a stable of Honda Elite models.
“We’ve tested them,” NYPD spokesman Paul Browne told The New York Post. “They’re more substantial and even though (each) will be assigned to one officer, they can carry more than one.”
With a retail price of $4,299, the Beverly 200 has a single cylinder four-valve four-stroke producing 21hp at 9,500rpm. The liquid-cooled bike features an electronic ignition, front and rear disc brakes on 16×3 allot wheels, a hydraulic fork and dual hydraulic shocks, and a 2.6-gallon fuel tank. Weighing 359 lbs., it has a carrying capacity of 440 lbs. and a tested top speed of 81 mph. psb

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