BRILLIANCE SLOWS APPROACH TO U.S. MARKET

UNCLAS SHENYANG 000223 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV EPIT EFIN PROV WTRO CH SUBJECT: BRILLIANCE SLOWS APPROACH TO U.S. MARKET REF: A. SHENYANG 00044 ¶B. SHENYANG 00155 ¶C. SECSTATE 117910 ¶1. (SBU) Summary. Brilliance Automotive plans to delay its entry into the United States market while it resolves safety and environmental standards issues for its line of high-end sedans. The company cites a return to profitability and a desire to make its market debut a clear success as the main reasons for conducting extensive testing and redesign. Brilliance is also moving to establish a sedan assembly plant in Russia and is in negotiations with General Electric to set up in-house financing for retail and fleet sales as well as dealer inventory. End Summary ¶2. (SBU) Shenyang's Huachen Brilliance Automotive has adopted a new, more cautious approach to its entry into the United States market. According to Huachen Chief Financial Officer, Lei Xiaoyang, Huachen will delay its first United States sales until at least mid-year 2008. The company had previously planned its American introduction for fall of ¶2007. Mr. Lei attributed the delay to a desire on Huachen's part to make sure that their vehicles not only met all U.S. safety and environmental standards, but were able to be classified as being at the high end of the quality scale. Mr. Lei said that they wished to be "more like Toyota than Kia." The return to profitability had also lessened the pressure on the company to rush its entry into the U.S. market, according to Mr. Lei. ¶3. (SBU) Brilliance introduced its vehicles to the European market in December, 2006. While the vehicles passed all required safety tests at that time, the company suffered a public relations setback when their vehicles performed poorly on another, optional, safety test. Despite the setback, Mr. Lei said that European sales had exceeded expectations and were a key to the company's return to profitability after several years of losses. ¶4. (SBU) In order to enhance quality and crashworthiness, Brilliance has hired senior quality-control engineers from BMW, with whom Brilliance has a joint venture that manufactures BMW's 3 and 5 series vehicles for the China market. Since U.S. safety standards differ substantially from those in Europe, Mr. Lei said the company had contracted with U.S. safety-consulting firms to redesign the crumple zones in the sedans bound for the U.S. market. In September, 2007 the company shipped 90 (ninety) full- and mid-size sedans to Detroit for the crash testing. Data from the testing will be used in the redesign process. At the same time, the company shipped several vehicles to California to enable the re-design of the emissions system. Mr. Lei said Brilliance plans to use California's strict standards as a baseline for all of its U.S.-bound vehicles. ¶5. (SBU) In addition to targeting the U.S. market, Brilliance is also poised for a major effort to penetrate the Russian market, according to Mr. Lei. In order to make this push, Brilliance will be establishing an assembly plant for its sedans in Russia with a planned opening in late 2008. While Brilliance assembles its minivans in a variety of locations outside of China, the Russian venture will be its first effort to assemble sedans outside of China. ¶6. (SBU) Reporting on Huachen's (Brilliance Automotive,s parent group,s) efforts to set up a financing arm for its domestic sales. Mr. Lei said that talks with GE Financial to set up a joint venture were progressing well toward setting up a financing arm that can provide loans for retail and fleet sales, as well as financing dealer inventory. He said that while Brilliance had initially proposed the venture for the China market only, GE preferred to include China, U.S. and European operations in the financing venture. WICKMAN