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Cablegate: Brilliance Slows Approach to U.S. Market

VZCZCXYZ0002
PP RUEHWEB

DE RUEHSH #0223 3300746
ZNR UUUUU ZZH PER SVC RUEHCB #9956 3321201
P 260746Z NOV 07
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8263
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 0775
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY

UNCLAS SHENYANG 000223

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EPIT EFIN PROV WTRO CH
SUBJECT: BRILLIANCE SLOWS APPROACH TO U.S. MARKET

REF: A. SHENYANG 00044

B. SHENYANG 00155
C. SECSTATE 117910

1. (SBU) Summary. Brilliance Automotive plans to delay its
entry into the United States market while it resolves safety
and environmental standards issues for its line of high-end
sedans. The company cites a return to profitability and a
desire to make its market debut a clear success as the main
reasons for conducting extensive testing and redesign.
Brilliance is also moving to establish a sedan assembly plant
in Russia and is in negotiations with General Electric to set
up in-house financing for retail and fleet sales as well as
dealer inventory. End Summary

2. (SBU) Shenyang's Huachen Brilliance Automotive has
adopted a new, more cautious approach to its entry into the
United States market. According to Huachen Chief Financial
Officer, Lei Xiaoyang, Huachen will delay its first United
States sales until at least mid-year 2008. The company had
previously planned its American introduction for fall of
2007. Mr. Lei attributed the delay to a desire on Huachen's
part to make sure that their vehicles not only met all U.S.
safety and environmental standards, but were able to be
classified as being at the high end of the quality scale.
Mr. Lei said that they wished to be "more like Toyota than
Kia." The return to profitability had also lessened the
pressure on the company to rush its entry into the U.S.
market, according to Mr. Lei.


3. (SBU) Brilliance introduced its vehicles to the European
market in December, 2006. While the vehicles passed all
required safety tests at that time, the company suffered a
public relations setback when their vehicles performed poorly
on another, optional, safety test. Despite the setback, Mr.
Lei said that European sales had exceeded expectations and
were a key to the company's return to profitability after
several years of losses.

4. (SBU) In order to enhance quality and crashworthiness,
Brilliance has hired senior quality-control engineers from
BMW, with whom Brilliance has a joint venture that
manufactures BMW's 3 and 5 series vehicles for the China
market. Since U.S. safety standards differ substantially
from those in Europe, Mr. Lei said the company had contracted
with U.S. safety-consulting firms to redesign the crumple
zones in the sedans bound for the U.S. market. In September,
2007 the company shipped 90 (ninety) full- and mid-size
sedans to Detroit for the crash testing. Data from the
testing will be used in the redesign process. At the same
time, the company shipped several vehicles to California to
enable the re-design of the emissions system. Mr. Lei said
Brilliance plans to use California's strict standards as a
baseline for all of its U.S.-bound vehicles.

5. (SBU) In addition to targeting the U.S. market,
Brilliance is also poised for a major effort to penetrate the
Russian market, according to Mr. Lei. In order to make this
push, Brilliance will be establishing an assembly plant for
its sedans in Russia with a planned opening in late 2008.
While Brilliance assembles its minivans in a variety of
locations outside of China, the Russian venture will be its
first effort to assemble sedans outside of China.

6. (SBU) Reporting on Huachen's (Brilliance Automotive,s
parent group,s) efforts to set up a financing arm for its
domestic sales. Mr. Lei said that talks with GE Financial to
set up a joint venture were progressing well toward setting
up a financing arm that can provide loans for retail and
fleet sales, as well as financing dealer inventory. He said
that while Brilliance had initially proposed the venture for
the China market only, GE preferred to include China, U.S.
and European operations in the financing venture.
WICKMAN

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