Behr Forms Automotive Joint Venture in China with Shanghai Automotive

Presence in the World's Fastest-Growing Auto Market

STUTTGART, Germany, Oct. 30 -- Behr GmbH & Co. KG and Shanghai Automotive Co., Ltd. (SA) have agreed to set up a joint venture, Shanghai Behr Thermal Systems Co., Ltd. (SBTS). The new company will begin operations on January 1, 2004, specializing in developing, manufacturing and marketing automotive air conditioning and engine cooling products.

Behr and the subsidiary of China's leading automotive manufacturing and supplier group, Shanghai Automotive Industry Corporation (SAIC), each have a 50 percent stake in SBTS. Potential customers include Chinese automakers and the operations of European and American vehicle manufacturers in China.

During its start-up phase, Shanghai Behr Thermal Systems will have about 500 employees. Over the coming year, production operations will be transferred from Shanghai Automotive's manufacturing plants to a joint-venture facility in Pudong.

Total capital expenditure for establishing the joint venture and constructing and expanding the new plant over the next few years will amount to approximately $40 million. The sales revenue target for the first year is $24 million. After a period of five years, the joint venture aims to generate sales of about $100 million.

China has developed into the world's fastest-growing auto market. Last year 3.5 million passenger cars and commercial vehicles were sold China, which is the world's most populous country. The car market, in particular, is growing at a fast rate. In the first six months of the current year, 80 percent more cars were sold than in the same period the year before. The China Association of Automobile Manufacturers is forecasting total production for 2003 of 4 million passenger cars and commercial vehicles.

The growth trend is expected to continue at an even higher rate in the future. Today, fewer than two in 1,000 Chinese inhabitants own a car, compared with an international car-ownership average of approximately 90 per 1,000.

Chinese automakers plan to produce more than 10 million vehicles per year by 2010. "This means that China is becoming a key region for us and we definitely must have a presence there as the growth-oriented technology leader in automotive air conditioning and engine cooling systems," says Markus Flik, Behr's CEO.

"All of the world's leading automakers see China as a significant driver for growth in the global automobile industry," Flik notes. "They are either boosting their presence or are about to enter this booming market. It is essential for us to follow our customers into this region and provide optimum local support as their competent partner."

The partnership with SAIC will give Behr a good starting position in this competitive environment, Flik said. China's biggest automaker has been one of the country's leading industrial enterprises for many years and manufactures vehicles in its own name and in cooperation with Volkswagen and General Motors. Behr's new partner also is involved in numerous joint ventures with other major automotive suppliers.

In 2002, around 610,000 vehicles rolled off SAIC assembly lines, including production for VW and General Motors and its own SAIC models. Of them, 410,000 were passenger cars. In the past business year, with a workforce of 60,000, the company generated sales of 120 billion RMB (around $13 billion).

Flik sees many reasons why the joint venture is likely to enjoy lasting success: "This partnership gives us direct access to the market, rather than having to put major time and financial resources into getting a foothold in the competitive environment." Key success factors will include SAIC's many years of experience in dealing with foreign companies, its well-trained workforce, a readiness to embrace new technologies and its clear strategy.

Behr's energetically-pursued expansion into foreign markets has enabled the group to continually improve its market position, in excess of the industry trend. In 2002, international sales accounted for 63 percent of Behr's total sales revenue, as compared with 54 percent in 2001.

"Following Behr's breakthrough in the North American passenger car market in 2002, Behr's global network is now complete, thanks to the new Chinese joint venture," Flik explains.

Behr opened an office in China in 2001, and in October 2002, signed a license agreement to supply HVAC modules for the VW Polo produced in Shanghai.

"Behr will move quickly to implement its high quality standards in China. In Shanghai Behr Thermal Systems, we will be responsible for all engineering aspects and will be appointing the chief technical officer," says Flik.

The necessary technology transfer will be carried out by Behr employees from Germany, including some foremen and production staff during the start-up phase. Intensive training courses for the Chinese team will be conducted at headquarters in Germany to impart the Behr corporate culture and lay the foundation for effective teamwork across national frontiers. This approach proved successful in the integration of the Behr Dayton Thermal Products plant in Ohio, when over 2,000 employees were introduced to Behr standards within a short period of time.

Company details:

Shanghai Automotive Co., Ltd. is one of China's leading auto suppliers. In 2002 the company employed 7,000 people and generated sales of 4.8 billion RMB (around $500 million). Its parent company, Shanghai Automotive Industry Corporation (SAIC), is China's biggest automaker and manufactures vehicles in its own right as well as in cooperation with Volkswagen and General Motors. In 2002 around 610,000 vehicles rolled off its assembly lines, including 410,000 passenger cars. In the past business year, with a workforce of 60,000, the company generated sales of 120 billion RMB (around $13 billion).

Behr GmbH & Co. KG, Stuttgart, is a systems partner for the international automobile industry. A specialist for automotive air conditioning and engine cooling systems, the Behr Group is one of the world's leading manufacturers and suppliers of original equipment for passenger and commercial vehicles. Group sales in the 2002 business year came to around 2.8 billion EUR. Currently Behr employs 16,300 people in 25 worldwide production facilities in Europe, North and South America, South Africa and India.

NOTE TO EDITORS: Further background information on Behr's Asia-Pacific activities, a repro-ready map and photographic material can be found at www.behrgroup.com