Brilliance China Won't Cut Mid-Range Sedan Price

Hong Kong In 03 Thursday 10:52 pm ET

HONG KONG February 27, 2003;Loretta Ng writing for Dow Jones Newswires reported that Brilliance China Automotive Holdings Ltd. said Friday it doesn't plan to cut the price of its mid-range sedans this year, despite increasing competition in China's sedan market.

The company is keeping its Zhonghua sedans priced at 169,800 yuan (US$1= CNY8.28), after considering potential market conditions over the next three years, company spokeswoman Elsie Chan said.

"The current price tag has taken into account the next three years of demand and supply for mid-range sedans in China. We believe this is a reasonable price, " she said.

Analysts have expressed concern about the impact of a possible price war for mid to high-end sedans as at least five sedan makers will begin large-scale production in China this year.

One competitor, Guangzhou Honda Automobile Co., Denway Motors Ltd.'s 47.5%-owned venture with Japan's Honda Motor Co. , has raised its output target by almost 90% to 110,000 sedans and multipurpose vehicles in 2003. It cut the price on the MPVs by as much as 10%.

The venture this year also launched a new Accord sedan priced about 14% lower than the older model.

Brilliance China expects to break even this year on the Zhonghua Sedan, which was launched in August, and sees it as its new earnings driver.

Chan added that the Zhonghua Sedan has been well received in the market. Sales totaled 5,200 from January to mid-February, after nearly 9,000 were sold between August and December.

"We don't see any need to cut its price," she said. "It is just our competitors who have priced their products unreasonably high earlier so they need to make adjustments."

Brilliance China has been embroiled in a legal dispute with its former Chairman Yang Rong over the sale of 39.45% of the minibus maker to Chinese authorities. Earlier this month a Bermuda court denied an injunction on the sale sought by Yang, and analysts hope the ruling will help speed up approval for a a long-awaited planned joint venture with German automaker Bayerische Motoren Werke AG.

A source familiar with the situation said a feasibility study on the planned venture should get Chinese authorities' approval by mid-March.

Also on the company's horizon is a planned launch in September of a domestic version of its 2.7-liter, Toyota-designed minibus "Grace" priced between CNY200, 000 and CNY250,000, which is at least 38% cheaper than the current imported, deluxe version.

"The pricing is well within market expectations," said HSBC Securities analyst Maurien Yau, who expects the company to produce 3,000 units this year, which will contribute about 8% of total revenue.

However, its share of revenue may grow to 26% in 2004 as sales of the minibus increase, she added.

Replacing the imported minibus with the model made domestically will also help raise the company's gross margin to more than 20% from 15% at present, as the increased usage of locally-made components will more than offset the lower price.

About 60% of the new version's content will be manufactured locally, compared with 0% for the older model, she said.

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