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and testing capabilities.

Since this year some Chi-nese carmakers intro-duced ”independently” developed engines such as the new Brilliance 1.8 T gasoline engine or the AC-TECO-series of Chery.

The big three Chinese OEM run a dual strategy of hav-ing both large joint ven-tures as well as pushing their own independent operations. In contrast, newcomers such as Hafei and Lifan are building their own car design, testing and production facilities .

This edition of China Auto-motive Magazine (CAM) take a close look what they have achieved so far. As monthly magazine, CAM can be subscribed free of charge by e-mail to [email protected] , subject: “CAM reader”. Hope you enjoy this edition and wish you happy read-ing!

Dr. Michael Sikora Editor-in-Chief

Dear Reader !

In the first seven months this year sales of passen-ger cars increased by 32 per cent up to 2.8 million vehicles. The top 10 car-makers in China have now a market share of more then 70 per cent: Shang-hai GM, Shanghai VW, FAW VW, Chery Automobile, Beijing Hyundai, FAW Toy-ota, Tianjin-FAW Xiali, Geely, Guangzhou Honda and Dongfeng Peugeot Citroen (ranked in term of sold cars).

Two out of these OEM are local Chinese OEM which have succeeded in estab-lishing a brand recognition to attract an increasing number of local car buy-ers.

Chery as No. 3 local OEM sold 65.000 units its com-pact car QQ in the first half followed by 42.000 units of its face-lifted Flagcloud

(旗云) and the 90.000

Tiggo (瑞虎) SUVs; alto-

gether Chery sold 125.000 cars. Geely ranks fifth in terms of sales surpassing the 100.000 units mark in the same period.

But it is one thing to meet

customer expectations in home markets. More ef-forts to upgrade technol-ogy and production proc-ess reliability are needed to enter mature overseas markets where up-to-date research, design and highly efficient process management are of crucial importance.

In August 2005, a Cam-bridge-MIT research pro-ject on China’s automotive industry value chain sum-marized that local manu-facturing capabilities are not yet up to global stan-dards and the competitive advantage is based on labour cost advantages only. Since then, senior Chinese executives have made independent R&D capability a top priority as the expected R&D technol-ogy transfer of their inter-national joint venture part-ners did not happen so far.

Until 2004 Chinese OEM focused on reverse engi-neering of components and design. But nowadays, with the help of foreign technology suppliers such as AVL-List, FEV, Lotus Engineering, they have managed to acquire mod-ule and system integration

H i g h l i g h t s 9/06

Brilliance new 1.8 Turbo

2

Chery New A15 Cloudwind

2

Chery‘s mana-gement hurdle

3

WTO dispute on auto parts

5

New SAIC‘s R&D manager

6

Shanghai licen-ce plate hike

6

Car sales jum-ped in August

6

CN-OEM: No Go for Russia

7

New Geely plant in Cixi

7

Geely engine for FC-1 car

8

Letters to the Editor

8

Self develop-ment is Priority

9

Ssangyong mis-sed salestarget

10

Chery V525 test drive

11

Ford bought Rover brand

12

September 2006 Issue 4

C h i n a A u t o m o t i v e M a g a z i n e 中国汽车杂志

© Automotive Business Consulting Ltd.

liance is the fact, that the engine comply Euro IV emissions stan-dards.

The all-alloy engine features ad-vanced engine technologies such as 16 valves, DOHC, intercooling, variable valve timing (VVT), elec-tronically controlled multi-point fuel injection, a high-energy elec-tronic ignition system, a crank-case ventilation system, and a chain drive timing system.

Hydro Aluminium Győr Kft., a sub-sidiary owned 100% by Norwe-gian Norsk Hydro Group, has been chosen as suppliers for the cylinder-heads and engine-blocks. The future development and the possible upgrading of the 4-cylinder 2-litre petrol engines will be carried out in Brilliance own development division.

In March 2006 Brilliance launched a “Chinese 3er model”

called Zhonghua Splendor (骏捷)

for a very competitive price, star-ting at 8,600 Euro up to 12,900 Euro. The Splendor shall be soon equiped with the 1.8T engine.

Shenyang-Brilliance Jinbei Automobile Co., Ltd. officially began quantity production of its 1.8T gasoline en-

gine at its engine factory in Shen-yang, Liaoning Province.

With technical assistance Aachen based FEV Motorentechnik GmbH, Germany, one of the world’s three largest internal combustion engine R&D institu-tions, the turbo-charged engine reach a maximum power of 125 kW at 5,500 rpm and peak torque of 235 Nm at between 2,000-5,000 rpm.

But what is more important re-garding future export plans of Bril-

Curently its hard to find any dealer for a test drive as all 8,000 cars have been sold out within four months and an additional or-der backlog of about 30.000 cars have been accumulated. Finally CAM succeeded to test the car in Shenyang.

This year, Brilliance plans to pro-duce 5,000 units of the 1.8T en-gine and is said to boost up pro-duction up to 25,000 units in 2007 and 50,000 units in 2008. The company also plans to de-velop 1.6L, 1.8L and 2.0L en-gines based on the 1.8T platform.

The engine plant had an initial in-vestment of 113 million Euro to meet an annual output capacity of 50,000 engines.

Source: ABC Ltd. Research

Brilliance Jinbei start up production of 1.8T engine

Issue 4

Chery Flagcloud facelifted

got a first facelift update in 2005 (SRQ7162) and, finally, discontin-ued production in 2006. In Janu-ary 1st Chery launched the new Flagcloud (model code: A15) in two 1.6l variants, one powered by Chery’s own 1.6L SQR480 engine and the other by Tritec’s 1.6L. The later car line has three ver-sions with a price tag of 7,600 Euro up to 9,600 Euro.

Italian design company Prototipo joined Chery for a technical up-

The Chery Flagcloud

(旗云) (model code

A11) was Chery Automobile‘s first car which rolled of assembly line in 1999. The car was based on the Seat Toledo chassis. The company took over the assembly lines of the Spanish Seat Toledo from a group of Mexican busi-nessmen. The Seat Toledo itself was based on VW Jetta MK3 plat-form.

The original Flagcloud (SQR7160)

date as well as design facelift. The company sold 41.000 cars of A11/A15 model in the first half of 2006 making it the No. 3 of most sold cars in China (No.1: QQ, No.2 FAW Xiali). Source: ABC Ltd. Research


Issue 3

Inside Analyses: Chery‘s Management Challenges to overcome

How is the team and management spirit of

Chery Automobile’s top manage-ment led by CEO YIN Tongyao? What is the development of man-agement skills of China’s 1st na-tional auto independent brand Chery Automobile?

When Chery Automobile is cele-brating that its sales volume for the first half year of 2006 reached 144,200 units pushing the company the 4th place, YIN Tongyao may also notice of some new defiances.

Last year, Chery Auto’s total sales volume was 180,000 units, but the profit decreased from 19 mil-lion Euro to 9.5 million Euro . Margin per vehicle plummeted to about 50 Euro (!). Guangzhou Honda’s instead generate a unit profit of about 2,000 Euro per car in China.

Having passed the first half of 2006 Chery’s profits figures are still less optimistic. Although Chery’s sales volume for the first 2 months of 2006 reached a new peak of 41,000 cars signaling a year-on-year increase of 111 per-cent, the total earning has sur-passed only 2.2 million Euro with profit ratio of only 1% indicating another 50 percent comedown as compared to last year.

However, during a recent inter-view of Chinese Magazine New Auto with the CEO Mr. YIN Tongyao in Wuhu citym Anhui province, the leader’s opinions are hard to reject. He said that the top management is satisfied with the profits for last half of this year and that “Chery Auto’s prof-its are not bad”.

Does Chery Auto really have no worries? Chery’s PR staff are still boasting that Chery Auto is rank-ing No. 1 in a year-on-year in-crease of 72.1 percent among the top 10 Chinese Auto Groups. It became the most speedy devel-opment auto enterprise. However, the doubts from outside such as from Tier-1 suppliers and industry analysts show a different picture. One supplier recently mentioned to CAM chief editor that “Chery has a very unusual hesitant pay-ment policy and he needs often his Chinese top management in-tervention to get money for deliv-ered services.”

This year a total number of six new Chery cars shall be intro-duced. And there will some more new vehicles roll of assembly lines in the next two years. Chery’s sales target for 2010 have set to 1 million cars which are needed to secure Chery’s sur-vival in more and more competi-tive and consolidating market. The question however is: Are Chery product development, vali-dation and reliability test proc-esses, QM-systems and manage-ment experiences are ready to meet this expectations ?

To launch so many new vehicles - such as the A5, V520 Crossover—both are already launched— the S21 (QQ6) compact sedan (picture see CAM 8/06, p. 5), the S12 (Golf class), the A18 (Kairui) station wagon and the S22 (compact business van) - bear a heavy challenge to Chery Auto to cope with.

“Golf-class” S12

Station wagon A12

One of the most crucial questions is: “Does all local suppliers meet Chery’s quality and reliability tar-gets? Has the company enough marketing experience to launch several marketing campaigns si-multaneously?

But no doubts for the CEO Mr. YIN Tongyao. He is sure that Chery can live up with all expectations, since Chery Auto’s history proved that already. In recent years (1997 - 2002) some experienced people inside Chery worried that the pace of product range up-dates and facelifts from old Wind-cloud to QQ and Oriental Son/Eastar have been too fast. GEN Shaojie several times tried to persuade YIN Tongyao to slow down the product range updating pace. However the CEO still be-lieves that Chery should produce more vehicles models to defy


Issue 3


Competition. If it does not accel-erate its product updating, it will be defeated by multiple-national companies. He is also convinced that most of the small auto facto-ries could never become one of the top 10 local auto manufactur-ers and sooner or later they will go bankrupt.

The growth of Chery Engine affili-ate company is a good example. The production volume of the two foundries, one in Wuhu city and the other one in Nanjing city are only capable to meet Chery En-gine Factory’s daily needs. FENG Wutang recalls that those two foundries needs to increase their production volume. But the two companies did not expect to raise their output so fast.

Such a situations is obviously a risky step. End of 2005, Chery had only 9,000 employees, while in the mids of 2006 the number of Chery Auto’s personnel in-creased to 13,000 already.

YIN Tongyao hopes that the new workforce shall become the base for Chery’s quick expansion. How-ever, the expansion of Chery is perhaps too fast. Previous suc-cess does not mean that success can be achieved in the future too.

A supplier from Nanjing told press recently that Chery’s operation status is correlated with so many suppliers and employees’ fate. Chery cannot accept failure be-cause its failure will bring disas-ters to a lot of people.

Perhaps, Chery may use its repu-tation of as first independent car maker as an tangible asset to re-ceive further loans from its home banks.

An extended credit line will help Chery to sustain until it develops

a new product that can succeed in the market.

Take as an examples the Devel-oping Financial Cooperation Agreement and High Technology R&D Loan Contract signed by China Development Bank and Chery on 16th March 2006. Chery got access to 240 million Euroin the first term.

But the CEO ist not willing to ac-knowledge that Government gave to much capital support to Chery. He even complained that the in-terest rate of China Development Bank is much higher that other banks. Undoubtedly, Government created a very good living environ-ment to Chery even though Chery has made many efforts for years.

There can only be one CEO

In the mid-July 2006, Chery car workers received some extra holi-day because of high outside tem-perature and humidity.

YIN Tongyao, who moved his of-fice to Chery Auto Engineering Academy, got hot temper anyway with a press release which re-ported, Chery Auto Engineering Academy was divided into four parts – Power Train R&D Acad-emy, Passenger Vehicles R&D Academy, Commercial Vehicles R&D Academy and Vehicle Test Center. This reorganization im-plied that local leadership’s repre-sentative LU Fujun - one of the eight chief founders of Chery – got more power while the repre-sentative of “Hai Gui” (people coming back from abroad after graduation) Mr. XU Ming’s power was weakened.

YIN Tongyao expressed his aston-ishment about the press release in the operation and manage-

ment meeting. In fact, it was rea-sonable to have these suspicions on Chery, since Chery R&D Acad-emy was under the direction of XU Min who was the dean before the academy’s reform. But, after the academy was divided into four parts, XU Min can only man-age the Power Train R&D Acad-emy while his former assistant – LU Fujun – is the dean of Com-mercial Vehicles R&D Academy who also manages Passenger Ve-hicles R&D Academy and Vehicle Test Center at the same time.

LU Fujun was invited to join the company by YIN Tongyao shortly after the launch of the company. He is a classmate of YIN Tongyao during their time at Hefei Industry University. After joining to Chery, he used to be leader of vehicle body department, leader of prod-uct department, vice-dean of Chery Auto Engineering Academy and assistant to general man-ager. In 2006, Mr LU Fujin was promoted to be the vice general manager.

In the meantime, some market observers said that Mr. LU’s pro-motion also implied, that Mr. ZHAN Xialai, who is representing the government interests (the commissioner of Anhui province committee and secretary of Wuhu city committee) and Mr. XU Min representing the overseas return-ees faction lost their controlling power. On the contrary, YIN Tongyao already stably held the managing power.

It is obvious that the overseas re-turnees fraction lost their manag-ing power in the R&D department of Chery Automobile.

Issue 3


LU Jianhui is one of the founders of Chery who holds a master de-gree of auto engineering from Qing Hua Univerity. He used to be the leader of Wuhu Special Vehi-cles Factory’s technology depart-ment Center. Though LU Fujun was promoted to have the same managing level as his, his main responsibility is decreased only to about quality issues.

After Chery was founded, he was invited by ZHAN Xialai – the sec-retary of Wuhu city committee – to take the position of supervisor in technology center. He founded Chery Auto Engineering Academy together with XU Min. Then in February 2004, he was promoted to be Vice General Manager of Chery. As people saying, he should certainly be on the side of ZHAN Xialai.

Even though YIN Tongyao re-placed ZHAN Xialai as CEO of Chery in 2004, ZHAN Xialai was not forgotten as the “Red Busi-nessman” with Government back-ground. Even some people in Automotive industry pointed out that YIN Tongyao was only a “puppet” on the stage. But after experiencing difficult phase in 2004 and obtaining success in 2005 and the first half year of 2006, he already attained the genuine managing power in Chery.

The influence and control on YIN Tongyao from ZHAN Fulai is get-ting weaker. As insider know, ZHAN Fulai was used to come to

Chery 3 times a week, but now he didn’t come even one time. The right of decision-making now lies in the hand of YIN Tongyao. As for the overseas returnees fraction, they are still taking some impor-tant positions on the vice general manager’s list.

In 2005 Dr. HAN Lei joined to Chery who is the vice general manager in charge of the joint in-vestment with Chery’s US activi-ties. Zhang Lin is acting as gen-eral manager of Chery Interna-tional Corporation who rcently held a position in Daimler-Chrysler Motor Corporation.

An anonymous overseas returnee mentioned that these people are deeply influenced by western cul-ture so that they are not good at Chinese traditional power compe-tition. Most of them have the technical background and have a lot of technical expertise.

Overlooking every crucial depart-ment of Chery Auto, majority im-portant positions are hold by YIN Tongyao’s old colleagues coming from First Automotive Works and some are college classmates. For instance, LI Feng the vice general manager in charge of sales is one of his classmate. The general manager of Engine Company is also an old colleague of him from the First Auto. A Chery analyst with long time observation told the press, you have to pay atten-tion to the phenomenon that there are a lot of vice general managers within Chery, which is for the sake of decentralization to

easily managing. However YIN Tongyao dislikes this say. He an-swered with smile to this question by replying; “How many vice gen-eral managers are in Chang’an automotive”? There are about 10 in Chang’an while there are only 8 to 9 in Chery. The phenomenon is very normal. And it is the tradition of state-owned enterprises.

Some middle to high level manag-ers think, it is not a bad thing of YIN Tongyao is controlling Chery, since the struggling among differ-ent factions will interfere with Chery’s growth. Yin Tongyao may help Chery develop further with his centralized power and affec-tion to Chery. A professor from the business college in Renmin University of China said, only if YIN Tongyao do not conceit with his power, he will lead Chery to a quick development.

In 2005, Yin Tongyao built up Chery’s core conception in 48 words. He required very one of Chery has to memorize those 48 words word-by-word and behave according to it.

Malcom Bricklin & YIN Tongyao

Source: ABC-Research

WTO auto parts dispute reached litigation state The US, the EU and Canada will ask the World Trade Organization to set up a dispute settlement panel to solve their ongoing con-cerns over violations and dump-ing of auto parts by China. Both the EU and the US said they would make the request Friday and Canada was expected to do

the same, Reuters reported. This could become the first trade dis-pute with China to reach the liti-gation stage since Beijing joined the WTO in 2001. US Trade Rep-resentative Susan Schwab said the move could mark the begin-ning of more efforts to ensure China follows the rules and

"should not be seen as a hostile act." The US and the EU asked Beijing in late March for talks on tariff policies which restrict ac-cess to China's US$19 billion auto parts market.


Shanghai Automobile Industry Corporation (SAIC) has hired GAO

Jiawei, formerly with General Mo-tors Corp, to strengthen its re-search and development capabil-ity as it seeks to roll out vehicles under its own nameplate.

SAIC Motor Manufacturing Co Ltd, the major platform of SAIC for making vehicles with its own technology, has appointed Gao as the director of its production line-up. It is understood that the new company is considering produc-ing smaller-sized vehicles, a source told Shanghai Daily. A SAIC Motor spokesman refused to comment yesterday.

SAIC Motor has an abundance of talent in its pool after lapping up

150 auto engineers from failed carmaker MG Rover. Gao's ap-pointment comes after SAIC named another former General Motors employee WANG Dazhong as its vice president in March.

The former GM chief engineer and design manager will be re-sponsible for technical manage-ment and product development, including R&D capabilities of the company.

SAIC, China's second-largest automaker, has been aggres-sively eying expansion after win-ning the intellectual property right for Rover 25 and Rover 75 from the British carmaker in 2005.

The Shanghai enterprise, which cooperated with both General

Shanghai Liscence plate price hike

Issue 3

The average winning price for a private car plate in Shanghai hit a two-year high at the recent week-end auction.

The average price for 4,500 plates in the monthly bidding rose to 3,900 Euro (US$4,969), com-pared with 3,800 Euro last month. The lowest offer to ac-quire a Shanghai plate was 3,950 Euro, which reflects an increase of about 180 euro over the previ-ous month. Shanghai Interna-tional Commodity Auction Co. Ltd., the auction organizer, said the minimum price had advanced for three straight months and was also the highest in the past two

years. The price has been hover-ing around 4.000 Euro since March, compared with an aver-age 3,390 Euro for last year. The 8.478 bidders - 177 more than in the previous month - were forced to offer higher prices because of the few plates available, industry insiders said.

The city government has cut the number of plates available each month to fewer than 5,000 since January, compared with the 6,829 put up for auction last Au-gust after the average winning price jumped to 3,880 Euro.

Analyst said this may indicate

that government intends to curb new car registrations to ease traf-fic jams and reduce emission amid buoyant car sales nation-wide. Shanghai is the only city to issue private car plates through auction in order to limit the num-ber of new privately owned cars on the road. "I expect more car licenses will be offered next month," said a VW dealer sur-named Zhang. "As more price wars were launched recently, po-tential buyers may wait, which will cool down the market."

Source: Shanghai Daily, 3.8.2006, p.B3

Motors Corp and Volkswagen AG, plans to invest 13.6 billion yuan (US$1.69 billion) to launch 30 models with its own technology in the market over the next five years. SAIC Motor's first self-branded model, a mid-to-high range family car based on the Rover 75, will roll out in the sec-ond half of this year followed by another family car early next year.

Reports elsewhere said the com-pany has also spent US$22 mil-lion to gain the Rover brand from BMW Corp. However, Huang Huaqiong, a spokesman for SAIC Motor, said the Chinese name for the models haven't been decided yet. The company's manufactur-ing plant aims to produce 300,000 vehicles by 2010. Source: Shanghai Daily, 11.8.2006


SAIC appoints GAO Jiawei to head its R&D subsidiary

Car sales jumped in August

China’s vehicle sales rose 26 per-cent in August to 528,100 units while production expanded 14 percent to 504,800 units from a year earlier, the China Associa-tion of Automobile Manufacturers

(CAAM) reported yesterday.

Passenger car sales including se-dans, sports utility vehicles and multi purpose vehicles climbed 29 percent year on year to

378,000 units. Chinese carmak-ers also sold 150,100 commer-cial vehicles during the same pe-riod, up18.78 percent from a year earlier. Source: Shanghai Daily 12.09.2006 p.B2

Issue 3

Chery Automobile Co. Ltd. and Great Wall Motor Co. Ltd. have suspended plans to make cars in Russia, where tightened rules will cut favorable tariffs for foreign carmakers.

Russia is planning to revoke the duty-free status of imported auto parts to prevent foreign carmak-ers from assembling vehicles in the country, according to Russia's Vedomosti newspaper.

Chery signed an agreement with the private Russian carmaker Avtotor in November to build a factory for its A-21 vehicles in Russia. The project, designed to

produce 150,000 units a year, has now been frozen, according to the newspaper.

Great Wall, China's largest maker of sport utility vehicles, failed to get government approval to set up a manufacturing plant in Rus-sia, where it planned to invest US$70 million, said Great Wall spokesman Shang Yugui.

"We are still actively negotiating with the local government as the policy would reduce our price competitiveness," he said, adding the wholly owned nature of the investment may be another rea-son for Russian concern.

The Russian move marks the sec-ond time Chinese carmakers have been barred from setting up plants in overseas markets.

Chery also delayed plans to make cars in Malaysia after the govern-ment asked it to export 80 per-cent of the vehicles assembled there.

China's vehicle exports surpassed imports for the first time over the decade, taking advantage of inex-pensive labor costs.

Source: China Daily, 8.9.2006 p. B3

Chinese Carmakers suspended plans for Russian plants


New Geely plant in Cixi, Zhejiang Province

The cooperation between Geely Auto group and Cixi Economic Development

Zone Administrative Committee led to a signing of a construction agreement, the “Geely Automo-bile 100 Project”.

Located in Cixi city, Hangzhou Bay new area (eastern Zhejiang prov-ince), a new plant with an total project investment of 1,88 billion Euro for all three phases has kicked off. The first-stage invest-ment shall be about 400 million Euro. With this new production facility, the company plans to pro-duce up to 1,000.000 cars, en-gines and transmission per year-end 2009.

Furthermore, Geely is planning to set up science and technology development and training base for high technical automobile components production and re-search, moulds production, auto-mobile experiment, education, administration and training.

Meanwhile, Geely will introduce leading comprehensive high tech-nical automobile components and parts enterprises to settled into Cixi for future cooperation.

Up to now, three enterprises had registered and set up projects with Geely Co. There are projects of achieving annual production of up to 200.000 bodies by Ningbo Geely Iron Leopard Pressing Co. Ltd. Another company plans an annual production of 200.000 pressing components and was cited as Ningbo Geely Radar Planking Processing Co., Ltd. As third company, Ningbo Geely Chanqi Mould Co., Ltd. target an annual production of 500 sets of Automobile Moulds production lines.

Geely, the mainland parent of Hong Kong-listed Geely Automobi-le Co Ltd, announced in Septem-ber last year that it planned to boost its annual output to 2 mln cars by 2015, with two-thirds of

this to be sold on international markets.


Geely Automobile began mass production yesterday of the country's first do-

mestically developed engine us-ing high-power valve technology, a key step on the road toward a fully Chinese-made auto.

Geely, which specializes in pro-ducing small vehicles and is China's leading private carmaker, has invested more than 10 mil-lion Euro to develop the new en-gine. It is the first domestic auto-maker to apply the highly ad-vanced CVVT - continuously vari-able valve timing - technology, the company said.

The 1.8-liter aluminum engine, which meets Euro 3 emission standard, will be able to produce a 140 horsepower, equaling Toy-ota's new CVVT engine, according to Geely.

Geely's Ningbo plant in Zhejiang Province will be in charge of en-gine production and is expected to turn out 50,000 units a year.

Zhejiang-based Geely said it has no immediate plans for exports. The advanced engine will be used to power Geely's upcoming FC-1 sedan as well as its Formula China cars, helping it to break into the mid- to high-end car seg-ments.

New CF-1 Sedan

"The advance self-developed en-gine could clear the way for Geely to offer more price-competitive models and save a lot on costs," said Zhang Xin, an analyst at Guo-tai Jun'an Securities Co Ltd.

Chinese carmakers, which must spend heavily to buy engines from foreign rivals, have tradition-ally lagged in making core auto components.

The lack of ability in this area has been the main hurdle for Chinese carmakers to develop cars using their own technology, which is a target as outlined in the central governments latest five-year plan.

An increasing number of Chinese automakers, including Brilliance China Automotive Holding Ltd and Chery Automobile Co Ltd, have

Beauty Leopard Sports Car

stepped up efforts to make their own engines - and their own cars.

Brilliance China, the domestic partner of BMW, used part of its HK$1.5 billion (US$193 million) bond sale to produce its own 1.8-liter turbocharged engine, which generates 10 percent more power and consumes less fuel than current engines. (See CAM article on page 2). And Chery Automobile Corp teamed up with an Austrian engine design com-pany AVL-List to jointly develop 18 aluminium gasoline and diesel engines

Source: Shanghai Daily, 9.8.06

Issue 3

LETTER TO THE EDITORLETTER TO THE EDITOR

„A very informative publication, the China Automotive Magazine! As logistic partner for Asian carmakers and Tier-n suppliers in the CEE region, CAM makes a useful contribution to get an insight view on these emerging Chinese carmakers“ Robert Galbavy, Executive Director, cargo-partner-group, Austria

„I am interesting to subsribe your automotive magazine, please put me on your mailing list“ Luke SU, Sales Manager, Neumann Aluminium, V.R. China

„Gratulation - Eine guter Überblick und nützliches Tool für unseren Vertrieb!“ Andrea Gottschligg, Managing Director, Wilhelm Gottschligg GsmbH&CoKG, Brunn/Gebirge, Austria


Geely Auto launched high-power engine for its FC-1 car

If Chinese automakers want to drive forward with their own self-designed models, they need to go beyond just creating a car using a platform developed by foreign carmaker. Instead it has to build a completely new car using do-mestically engineered core parts. Auto analysts said, however, it is still a long road ahead for domes-tic car producers to roll out mod-els that are purely developed by them, despite of the hype of con-cept cars is sweeping across the nation.

Several weeks ago, FAW, China's largest carmaker, launched a new so-called self-designed sedan in Shanghai. The firm claimed the Benteng C301 v, which means "galloping forward" in Chinese, is China's first domestically de-signed sedan in the mid-to-high end market. However, the model, powered by a 2.3-liter or 2.0-liter engine, was developed on the platform of the Mazda 6, which is also produced by FAW under li-censed production from Japan's Mazda Motor Corp. Its Benteng model uses core auto parts from Mazda including Mazda 6's en-gine, power and transmission systems. But the Chinese firm has made changes to body de-sign, safety equipment and inte-rior decoration incorporated a thickened steel board and over 3,883 welding spots over the past three years developing the Benteng.

But the Benteng is not alone. SAIC, China's second largest car-maker, will also roll out its first self-branded models based on the Rover 25 and Rover 75 after it bought intellectual property rights from the crumbles British MG Rover.

More and more models are being labeled as self-designed but they share a lot in common with vari-ous home-produced models intro-duced by foreign carmakers in-

cluding General Motors Corp, Volkswagen, Toyota and Ford.

"Strictly speaking, models like Benteng could not be called a self-developed model as its core spare parts were not made by ourselves (domestic carmakers)," said MA Jun, vice professor of the automotive college at Shanghai-based Tongji University. "The (so-called) self-development is actu-ally a complete knocked down model with little changes to meet local demand," he pointed out. MA added that Chinese auto-makers should acquire "technology in car design, mod-ules, brands as well as spare parts," but it "is difficult to achieve for the toddling Chinese auto in-dustry now."

Last year, China's vehicle sales surpassed Japan to rank as the world's second largest auto mar-ket. But over 80 percent of the technology, especially engines and transmission systems were made by foreign carmakers.

Domestic state-owned carmakers including FAW, SAIC, Dongfeng Automotive Group, Chang'an Auto and Jianghuai Auto, all plan to launch models under their name plates to echo the government's call to develop self-designed mod-els in the 11th Five-Year Plan starting this year.

Zhang Xin, an auto analyst at Guo-tai Jun'an Securities Co Ltd, said self-development doesn't mean that one invents a model from scratch. "Learning from advanced technology would help to shorten the R&D efforts, avoid repeating the mistakes and it's not a matter of patent infringement or copy-right dispute either. But we are also encouraging more technology innovation to boost the develop-ment of the whole industry over the long term," Zhang said. Chi-nese state-owned automakers used to rely on models introduced

by foreign partners to lower the R&D costs and make profit more quickly.

"China's auto industry has spent the past 10 years to achieve de-velopment that took foreign coun-terparts 30 years to do. We need time to absorb the technology and it may be another five to 10 years before we roll out a genuine self-developed model," Ma said.

Between 1985 and 2005, the Chinese domestic automakers made 15,686 patent applications, but they represented only one-fortieth of that in the information technology industry.

But Chinese carmakers are catch-ing up quickly. In 2004, Chang'an Group registered 106 patents, surpassing the combined number over the past 10 years. Last year, 160 patents were registered.

SAIC has invested 1.8 billion yuan (US$225 million) to expand its auto R&D institute to produce hybrid vehicles and fuel cell mod-els.

Zhejiang Province-based Geely automobile Co Ltd, one of China's leading private carmakers, to-gether with Brilliance China Auto-motive Holding Ltd, Chery Auto-mobile Co Ltd and BYD Automo-bile Co Ltd has already developed engines using their own technol-ogy.

The technology of an engine, the most essential core part in a car, used to be controlled by foreign counterparts and the high royalty fees created a roadblock to re-duce the auto costs on home-made models. This is going to change soon to make Chinese OEM more independent.

Source: Shanghai Daily 13.09.2006 p.B5

Issue 3


Self-developed car projects of Chinese OEM needs a new momentum

A traffic policeman rides a new tow motorbike, which was put into use yesterday on elevated roads. Police bought the four Honda GL motorbikes and had them refitted into towing vehicles in Sweden.

FOUR new tow motorbikes were put into use yesterday on ele-vated roads. Police said they ex-pected the innovative vehicles to greatly improve their efficiency in dealing with car accidents and stranded vehicles.

A four-wheeled tow truck takes 12 minutes on average to tow a car off the road. The motorbikes can complete the task in half that time, police said. Accoding to their experience, motorbikes are

much more agile in traffic com-pared with four-wheeled tow trucks and can handle a single task within 5 to 6 minutes. Cur-rently the Shanghai police is in-vestigating for better solutions to relieve traffic delays caused by broken-down vehicles on the ele-vated roads about a year ago.

On average, some 50 vehicles broke down every day on the city's elevated roads. A single inci-dent can cause tailbacks of 100 meters or even up to several kilo-meters, police said.

It's important for towing vehicles to get to stranded cars as quickly as possible to avoid delaying traf-fic. That is why the Shanghai traf-fic and emergency authorities bought four Honda GL motor-bikes, with 1800CC engines, and had them refitted into towing ve-hicles by a Swedish company.

The bikes are equipped with folded towing equipment at the back, which can be unfolded when needed for towing. The mo-

torbike weighs 600 kilograms, but it is able to tow a vehicle of 2.5 tons, about the weight of a minibus.

"At present, the new towing vehi-cles will patrol on the elevated roads near the city's central areas to help quickly solve traffic prob-lems resulting from broken-down cars," said LIU Xianhua, head of the city's elevated road traffic po-lice team. Liu said they had se-lected four traffic police officers to drive the new vehicles. During a demonstration yesterday, a po-lice officer spent five minutes un-folding the towing equipment and attaching it to a car.

"The officers were some of our best motorbike drivers and the time of handling the task would be reduced after they get familiar with the functions of the new ve-hicles, Liu said. "The goal is five minutes on average to clear a sin-gle car."

Source: Shanghai Daily

Issue 3

Tow bikes take the strain out of Yan’An Elevator highway in Shanghai

SAIC owned Ssangyong missed sales target Ssangyong Motor Co, South Ko-rea's fourth-largest automaker, said it may miss its 2006 sales target, and added that worker layoffs next year will be "inevitable" if its performance doesn't improve.

The company's sales in Q2/2006 may be less than it achieved a year earlier, CEO Choi Hyung Tak said at a briefing in Seoul yester-day, according to Bloomberg News. The company's sales fell in both July and August as a seven-week strike cut production.

Ssangyong is selling fewer sports utility vehicles, as higher taxes on diesel and slower economic growth are crimping demand. Big-

ger rivals Hyundai Motor Co and GM Daweoo Auto & Technology Co have also released new mod-els, intensifying competition.

"The customer response to new Ssangyong models so far hasn't been good," said Song Sang Hun, an analyst at Hyundai Securities Co in Seoul, who has a "market perform" rating on the company. Ssangyong "should release new, more competitive models to cope with challenges from rivals."

Ssangyong's sales fell 76 percent from a year earlier in August and more than halved in July, as the company lost production of 17,200 vehicles because of a strike. The company, controlled

by China's SAIC Motor Corp, sold a total of 139,000 vehicles last year.

Shares of Ssangyong Motor rose 2.7 percent to 5,040 won in Seoul yesterday. The stock has fallen 38 percent this year, while the benchmark Kospi Index is lit-tle changed.

Ssangyong will release the first of three new models in the second half of next year or in early 2008, Zhang Haitao, the company's ex-ecutive vice president, said yes-terday.

Source: Shanghai Daily 19.09.2006 p.B6


Chery’s internal model number of the Chery V5 model was B14. It

was first shown in Beijing Auto-motive Exhibition in 2004 with the name of “New Crossover”.

The V5 is indeed the first multi-function passenger car of Chery Automotive for the emerging MPV market and will be also the first car to enter North American mar-ket in about 2008 or beginning of 2009.

There was much hearsay about Chery V5 in early times especially about its name. According to Chery Automobile, “V” stands for the code of full series multi-purpose vehicle and “5” stands for the fifth product technology platform.

Another interpretation of the ac-tual name V525 is that it refers to the engine volume of 2.4L, the Mitsubishi 4G64 engine with a discharge of 25. However, before the company declares that, let’s name it V5.

The China-version of the V5 does not currently use the new AC-TECO ACL-List co-developed en-gine. Instead it uses the tradi-

tional 4G64 Mitsubishi licensed engine together with a manual and automatic transmission gear-box.

An Industry analyst explained that the ACTECO series has not ready a 2.4L version, and another argu-ment told to ABC research is that ACTECO engine is usually com-bined with a manual transmission (compare it with the new East-star, or mid-sized sedan A516 and A520). Chery could not finish in time the modification of power transmission and engine calibra-tion.

The 4G64 engine is an old friend that it works satisfactory and sta-ble. It behaves smoothly with a moderate acceleration and matches well with Chery’s gear-box.

The automatic model of the V-series accel-erates smoothly where the driver does not feel the gear shifting at all. But when the car is switched back to the manual model, the full throttle will be cut off at 6000rpm, though the maxi-mum is said to be 7000 rpm.

However, it is normal for a seven seat MPV to accelerate smoothly instead of a quick leap forward.

Unfortunately, the still existing problem of the Mitsubishi 4G64 engine is its noise. The best speed is 3,000 rpm where it makes almost no noise while 4,000rpm makes the engine rum-ble abnormally and at 6000rpm it really roars.

The V5 uses the same body as the new Eaststar and the chassis behaves excellently during driv-ing. Although the drive control features (ABS+EBD) doesn’t leave any special impression on us, it is a additional safety feature for inexperienced drivers.

The interior trim of V5 is neatly and without too much decoration elements. Different from the tra-ditional design, the instrument panel is located at the center of the cockpit.

At the former place Chery has added another storage box with a click-and-open cover. Two pieces of peach wood decoration is

mounted left and right of the cockpit. Under the instrument panel the driver find a sound en-tertainment system (CD & DVD).

The third row of seats can be eas-ily pulled-down, but the seats comfort is only satisfying small people. Large European man shall find it difficult to feel com-fortable enough. To enter this row, one only needs to open the rear door and activate the rope switch on the back of the seats and the seats will fold automati-

Issue 3

Chery V525 Crossover test drive


cally.

The materials of three rows of seats are all fabric with a bal-anced hardness and softness feeling. If the third row is not oc-cupied, passengers of the two front rows will feel more spa-cious, as they can move back their seats. If the rear rows are both occupied, it’s better to ask a larger passenger to take the seat next to the driver. Otherwise he or she will complain in less then 15 minutes.

The car has been introduced on the market end of June with a price tag of: 13,000 Euro for the V 525 Luxury version and about 14,000 Euro for the V520 version with ACTECO-engine.

Mr. QIN Lihong, Vice-GM of China sales commented the V5 intro-duction recently as follows: “The whole MPV market of China is not yet large enough for justifying a large production output similar to those quantities international car maker usually target. But the pur-

pose of Chery is to get a certain amount of market share. It is more important for us the get a good reputation in this market segment, as we are planning to export this car to overseas-market such as Europe and to the U.S.”

In this case, Chery seems to be ready to enter new domestic seg-ments but also prepare for global market launch of its V5 models.

Source: ABC research

Issue 3


Ford to buy Rover name, SAIC may not use

Ford Motors Corp will exercise its right to buy the Rover brand name from BMW, blocking one of China's largest automakers from buying the name for its own mod-els.

Ford informed the German auto-maker on Monday evening that it would buy the brand name for an unspecified price in order to pro-tect its Land Rover unit, the com-pany said in a statement yester-day.

Ford bought the Land Rover unit from BMW AG in 2000 and signed an agreement giving it the right to buy the Rover brand name.

"The Rover brand is a valuable asset," said Kenneth Hsu, vice president of Ford Motor (China) Ltd yesterday. "We hope to keep the unity of Land Rover and Rover and we have no intention of sell-ing the brand to others," Hsu told Shanghai Daily. He wouldn't say how much Ford paid for the brand name.

British media reported the deal was probably worth about 6 mil-lion pounds (US$11.2 million).

The deal prevents Shanghai Auto-

motive Industrial Corp from buy-ing the brand name.

SAIC, the nation's second-largest car manufacturer, had reportedly reached an agreement with BMW to buy the famous British luxury brand if Ford passed on its right of first refusal.

The Chinese partner of General Motors and Volkswagen said yes-terday Ford's offer would not af-fect its plans to develop its own brands and doesn't expect to try to buy the Rover name from Ford.

"The famous Rover brand may help our self-designed models to expand to overseas markets in the short term, but we are also able to establish a world-class brand by ourselves," SAIC said in a statement yesterday.

The Shanghai-based company is developing its own models based on technology used in the Rover 25 and Rover 75 sedans, which it purchased from British carmaker MG Rover when it went bankrupt last year.

The company expects to launch its first new model in before the end of this year.

SAIC-Rover 75 Early Spyshot

The failed MG Rover sold the as-sembly line and MG brand to Nan-jing Automobile Group for about US$87 million.

Source: Shanghai Daily 20.09.2006 p.B4 ABC research

Issue 3


Classified Ads & Promotion

China may stop its negotiations with the European Union, the United States and Canada after they requested the World Trade Organization to convene a spe-cial panel to rule on a dispute over auto parts tariffs, an official warned. "There have been trilat-eral discussions between a dele-gation led by China's department of treaty and law and related par-ties," said an official from the De-partment of WTO under the Min-istry of Commerce yesterday.

"But we couldn't rule out the pos-sibility that we may halt the talks in the near future as our regula-tion (over the tariffs) was not a break with our WTO commit-ment." Last Friday, the EU, United States and Canada jointly re-quested the establishment of a WTO panel to rule on China's tar-iffs on auto parts.

China levies an extra 15 percent duty on imported car components if they make up 60 percent or more of the value of a final vehi-cle, which equals to the tariff on imported whole vehicles.

The EU believes the rule imposes a cost disadvantage on foreign carmakers and forces them to source more parts from Chinese suppliers. Chong Quan, a spokes-man for the ministry, expressed regret yesterday in a statement posted on its Website, reiterating that the rule aims to prevent automakers taking advantage of different import tariffs on com-plete models and auto parts to escape customs supervision and evade taxes. It is the first litiga-tion measure taken by the EU and the United States in the first-ever trade conflict involving China's auto industry, following similar

disputes in the shoe and textile sectors. hina was offered a com-promise after the concerned par-ties launched a 60-day WTO con-sultation on the auto parts dis-pute between March and May al-though no final solution has been worked out. In July, China post-poned the effective date for the measure that will charge higher tax on certain imported auto parts until July 1, 2008, but the EU thinks it is still too soon. Un-der WTO rules, China may block the first request, in which case the request will be presented a second time in October. The crea-tion of the panel cannot be blocked a second time. A pro-ceeding before the panel usually takes an average of 12 months. An appeal against a decision be-fore the Appellate Body is possi-ble. Source: Shanghai Daily 19.09.2006 p.B1

China warns it may stop talks over auto parts tariffs spat

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Oktober Edition Topics

• Second Hand Car

markets • Testdrive: Brillian-

ce Splendor 1.8T • Profile: Jinbei Bril-

liance • Inside Report:

Shanghai Maple • Sales Statistic • Asia Region Re-

port: Malaysia


Readers Coverage 9/06 830 automotive reader, A-segment (CEO, BDM)

7/2006- : German Tier-2 supplier with production in Shanghai

中 SWOT-Benchmarking of China Business Strategy

中 Market structure and market potential analyses

中 Ealoborate Sales Strategy (USP)

中 Setup OEM-Database (platform, car model/segment, SOP, volume, price)

中 Business lead generation for local sales team

中 Region coverage: P.R. China, Korea, Malaysia

7/2006- : German Tier-2 supplier with production in Shanghai

中 SWOT-Benchmarking of China Business Strategy

中 Market structure and market potential analyses

中 Ealoborate Sales Strategy (USP)

中 Setup OEM-Database (platform, car model/segment, SOP, volume, price)

中 Business lead generation for local sales team

中 Region coverage: P.R. China, Korea, Malaysia

Engineering Services:

中 Project Management (MS-Project) and Project Staffing

中 Translation of automotive regulations and project documents

中 Two CAD workstations equiped with Pro/Engineer wildfire 2.0/3.0, Catia V5 R10, Autocad 2006 and Solidworks

中 Project briefing to R&D team of local suppliers (design process, drawing localisation)

中 Structured search procedure to select qualified suppliers for sourcing projects (QM and process audit at production site)

中 Supplier Benchmarking (Standardized comparison of quotations)

中 Implement process- and quality management systems (Six Sigma, APQP) together with an international partner

July 2007 OEM Ranking in terms of sold cars

No. Name Sales in July Daily average Monthly tendancy1 Chery-QQ 49936 1611 →2 Brilliance-Junjie 38513 1242 ↑ 13 Toyota-Crown 37791 1219 ↑ 34 FAW-Mazda6 33609 1084 →5 Toyota-Camry 33257 1073 ↓36 SGM-Buick Excelle 31479 1015 ↓17 Dongfeng-Peugeot-Citroen-XsaraPicasso 28004 903 new arrival8 Chevolet-Lova 25389 819 ↑ 29 SVW-Polo 24549 792 new arrival10 Chery-V5 21578 696 new arrival11 Peugeot206 17129 553 ↓412 Honda-Civic 12732 411 ↓413 Chery-Tiggo 10941 353 potential model14 Toyota-Corolla 10901 352 potential model15 Hyundai-Accent 10805 349 ↓5

Source: New Auto, 8/06, p.27 Chen Yao

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