BMW Brilliance's 2nd Plant to Be Built

The 300,000 capacity plan of BMW Brilliance breaks the rumors that BMW is looking for a second partner. Mr. Christoph Stark, BMW China CEO& President, said that BMW is very satisfied with the current partner and there is no need to find new partners, according to the 21st Century Business Herald.

BMW Group and Brilliance Automotive Group signed a memorandum of understanding on November 12, 2009. According to the memorandum of understanding, both sides stated formally the strategic commitment to further develop the joint venture- BMW Brilliance Automotive Co., Ltd. Based on the successful development of BMW Brilliance for six years and the excellent cooperation among shareholders, the shareholders from both sides decided to start the development plan of next phase. Meanwhile, BMW Brilliance signed the related investment agreements with Shenyang municipal government.

According to the future plan the existing plant of BMW Brilliance in Shenyang Dadong District will keep a steady growth. At the same time, BMW Brilliance will invest in the construction work of new plant which is located in Shenyang Economic and Technological Development Zone in order to attract further development.

The construction project will start in 2010. The potential total production capacity will increase to an annual output of 100,000 in the first step. With the future development of the Chinese market, the long-term development plan will be aimed at increasing the production capacity to an annual output of 300,000.

Dr. Friedrich Eichiner, the member of the Board of Management of BMW, told the 21st Century Business Herald that "China has become the world's fourth-largest market for BMW. In October, the sales of BMW and MINI increased by 80% compared with the same period of 2008. This phenomenon reflects BMW's commitment to develop business in China for a long term."

The goal of 300,000 may be achieved after 2016. Compared with the expansion project brought by Audi in the beginning of 2009, BMW has designed a long-term project. However around the expansion plan the process may be tortuous and varied.

Brilliance Group's management which is led by Mr. Qi Yumin hopes that the brand power of its joint-venture partner-BMW should be utilized to the maximum degree. With the help of BMW, Brilliance can develop its independent brand. As a high-end brand, BMW does not want to have too many links with Brilliance vehicles, whose prices are usually no more than 200,000 yuan.

At last the second factory will not settle in Shenyang Dadong District. The plant is not located near Brilliance’s factory. Analysts pointed out that BMW intended to avoid Brilliance.

In the week before two sides signed the agreement, the construction site was determined. As to the issues around expansion and construction project, Brilliance and BMW failed to offer coordinated opinion.

21st Century Business Herald learned from Dr. Friedrich Eichiner that BMW and Brilliance had passed the decision to build a new plant long before. However, due to the geological requirements for the building of factories, BMW and Brilliance conducted a survey at different sites. At the same time, with the possibility of expanding the plant further, they decided to build the plant in the development zone.

As to the rumors of sharing-line production, Brilliance Group's Chairman Qi Yumin said at the conference it had not been decided yet about the issue of whether Brilliance and BMW would share the same stamping or painting facility.

According to the future planning, BMW Brilliance's investment in the new plant will exceed five billion yuan. The expansion program is divided into two parts: first of all, BMW Brilliance will expand the capacity of the current factory located in Shenyang Dadong District to 75,000 from 30,000 by the end of next year; second, the construction work in the Shenyang Economic and Technological Development Zone will start in 2010. In the first stage the capacity will reach an annual output of 25,000 and after the rolling development the final capacity will reach an annual output of 300,000. The funding sources of Brilliance have become a topic of concern in the industry.

Dr. Friedrich Eichiner said that both sides promised that the dividends of BMW Brilliance would not be allocated and the fund would be used to finance the construction of second factory. Some documents show that in 2008 BMW Brilliance's profit was more than half billion yuan, with an increase of 79.8%.

In addition, the Brilliance Group has separated the Brilliance Auto from Brilliance China (1114.HK). As the Chinese shareholder of BMW Brilliance, Brilliance China could obtain no more than 550 million yuan from Brilliance Group. This part of the funds will be used for BMW Brilliance's expansion program.

Analysts pointed out that since BMW Brilliance implements the rolling-development strategy in the new construction project, the investment of more than five billion yuan will not allocated at one step but rather in phases. In the first stage the capacity will reach an annual output of 25,000 to 30,000. Therefore Brilliance is able to finance the expansion project.

According to sources, after the expansion of current factory, BMW Brilliance will produce long version 5 Series sedan equipped with 5.4-meter-long wheelbase.

In order to respond to the localization of Audi A5, the new plant will probably produce X3 first. (Translator: Qinghua/Hanxin)

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