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