BRILLIANCE EXPANDS FINANCIAL AND COMPONENT

C O N F I D E N T I A L SHENYANG 000015 SIPDIS SIPDIS E.O. 12958: DECL: 01/25/2018 TAGS: ECON EINV EPIT EFIN PROV WTRO CH SUBJECT: BRILLIANCE EXPANDS FINANCIAL AND COMPONENT SEGMENTS AND ADDS A LOW-END PRODUCT LINE REF: A. SHENYANG 00044 ¶B. SHENYANG 00155 ¶C. SECSTATE 117910 Classified By: Consul General Stephen Wickman reasons 1.4 (b and d) ¶1. (C) Summary. Shenyang's Huachen Brilliance Automotive, which plans to enter the U.S. market later this year, has completed negotiations and regulatory steps to establish a joint-venture automotive-finance corporation with U.S.-based GE Money. The joint venture will begin operations in China by June. Brilliance is also negotiating with Shanghai Automotive Industrial Corporation (SAIC) to establish a joint venture to manufacture automatic transmissions for China's domestic market, possibly the first such completely localized effort. The Shenyang-based Chinese manufacturer is also studying the feasibility of developing a production line for its Mitsubishi-engineered engine line and has added a mini vehicle to its domestically-sold product line. End Summary. Fleet Financing on Track -------------- ¶2. (SBU) Shenyang's Huachen Brilliance Automotive has completed negotiations with GE Money to establish a joint venture automotive financial corporation, submitting all necessary applications and declarations to the Beijing-based China Banking Regulatory Commission. According to Brilliance CFO Lei Xiaoyang, regulators told him the paperwork was approved but will not be released until after the upcoming Spring Festival. He said the joint venture company expects to finance retail purchases, fleet sales and dealer inventory and will open its first office in Beijing in June. New Strategic Operations -------------- ¶3. (C) Mr. Lei confided that Brilliance aims to broaden its operations to cover all aspects of production and sales. He cited, for example, an agreement between Brilliance and Shanghai Automotive Industrial Corporation (SAIC) to establish a joint venture to manufacture automatic transmissions for China's domestic market, which we believe would be the first completely localized production base for such transmissions. He explained that the joint venture would sell to any interested manufacturers and would not limit its sales to the two parent companies. Mr. Lei revealed that Brilliance and SAIC hope to find a strategic partner, preferably from the United States, to join in the venture. He expected the total initial investment to be about USD 750 million. ¶4. (SBU) Brilliance, which returned to profitability in early 2007, reported 30 percent growth in both sales and revenue for 2007. According to Mr. Lei, the company will reinvest virtually all of the profit to support the new ventures and a radically revised product line. Brilliance began production of a new mini vehicle in the final quarter of 2007 and is far along in the development of completely redesigned sedan lines that will debut in late 2009. Learning from Europe to Enter the United States -------------- -- ¶5. (SBU) Brilliance continues to move cautiously in its foray into the American market, a lesson learned after European crash tests adversely impacted its once-heralded European debut. However, the company quickly recovered, achieving a satisfactory test result in a re-test conducted three months later. The company is again contracting out major design parts to prominent design houses. The body will be crafted by Ferrari and the suspension by Porsche. According to Lei, the chassis will incorporate sixty-five new components developed to meet European safety standards, as well as additional enhancements resulting from safety reengineering currently underway in the United States. ¶6. (SBU) Brilliance still hopes to bring its sedan line to the American market and has no plans to enter the low end of the market. Mr. Lei explained that low margins and fierce competition simply make the low end unattractive. He believes Brilliance's entry with a luxury-style low-priced sedan will reap big dividends. ¶7. (SBU) Brilliance also hopes to be the first Chinese company to both sell and produce vehicles in the United States. Lei explained that his company will likely begin by producing replacement parts in the United States and likewise investigating the possibility of acquiring a Mitsubishi-owned facility in the central United States to produce engines. WICKMAN