DaimlerChrysler, Mitsubishi Motors, and Hyundai Motor
are deepening ties with Beijing Automotive Group
Mitsubishi Motors will produce the Pajero at Beijing Jeep,
Hyundai Motor established Beijing-Hyundai Motors

In February 2001, DaimlerChrysler (DCX) established Daimler-Chrysler (China) Limited, which supervises DCX's Chinese business, including the non-automotive business in order to strengthen its operations in China. Up to then, DCX's automotive operation system in China consisted only of small-lot production of buses and trucks, excluding production of the Cherokee by Beijing Jeep Corp., a joint venture with the former Chrysler.

DCX is rapidly developing the buildup of an automotive business system in China, one year after the establishment of a regional headquarters which mainly handles such operations as cultivation of the market for Mercedes-Benz's passenger cars, mini-vans and trucks, supervision of existing joint ventures, and expansion into new joint ventures. The core of the development is the expansion of the relationship with Beijing Automotive Industry Equity-controlling Co., Ltd.(Beijing Automotive Group), including development with Mitsubishi Motors and Hyundai Motor, DCX's alliance partners.

The following report covers the recent trends of the DCX group, which seems to be lagging behind in the establishment of a Chinese business system, and provides a general outline of Beijing Automotive Group, which is lacking in future prospects because its business is beginning to be limited to production of agricultural vehicles.

■DaimlerChrysler's regional headquarters in China and Chinese automakers with which it has relationships

■DaimlerChrysler (DCX): has extended the period for the joint venture, Beijing Jeep, by 30 years to expand the Chinese business

In March 2001, DCX signed an agreement to extend for 30 years the period of the joint venture (Beijing Jeep) with Beijing Automotive Group (which is currently awaiting approval by the Chinese government). Under the agreement, the following business expansion plans were included: ①additional investment of 218 million US dollars. ②launch of at least one new model a year ③development of a line-up consisting of high-end, medium, and standard off-road vehicles and MPVs.

In addition, it is said that the company, by establishing a task force, is studying the possibility of producing Mercedes-Benz's passenger cars in China. In March 2002, it was announced that Beijing was the first candidate site. Also, joint production of passenger cars in China with China Motor Corp. of Taiwan is said to be under consideration.

In the field of trucks, Mercedes-Benz has already started joint production of heavy trucks at Baotou North-Benz Heavy-Duty Truck Co., Ltd. in Inner Mongolia, China. However, a full-scale production system for heavy trucks has not been established due to the failure in 2002 of full-scale joint venture production of heavy trucks by Freightliner, a US subsidiary. In relation to this, it was made public that Zhu Yanfeng, a president of China FAW, visited Germany to hold talks on forming an alliance with Mercedes-Benz in the field of heavy trucks. Future development of the negotiations is being watched.

■Dissolution of Freightliner's Chinese joint venture (2000)

■Production capacity by Chinese auto manufacturers with which DCX has relationships

■Beijing Jeep: will start production of Mitsubishi Motors' Pajero Sport in 2003 and launch a series of new models

Beijing Jeep launched the V8 Grand Cherokee in 2001, L6 Grand Cherokee (with 6-cylinder 4000cc engine, priced around 500,000 RMB) in May 2002 and the Jipuzhixing (two-wheel drive, 5-speed manual transmission, electronic fuel injection 4-cylinder 2500cc engine which meets Euro‡Uemission standards, priced around 125,000 RMB), which is one of the Cherokee series.

In June 2002, Mitsubishi Motors announced that it had signed an agreement on technical assistance for the Pajero Sport (Japanese name: CHALLENGER) in order for Beijing Jeep to produce the model (this agreement is also awaiting approval by the Chinese government). Production will begin in the first quarter of 2003, with planned production volume of 10,000 units per year. An Qingheng, the chairman of Beijing Jeep, commented that the company has gained an opportunity to recover competitiveness and profitability by increasing the line-up with production of the Pajero. Moreover, Beijing Jeep and Mitsubishi Motors are said to be currently studying the possibility of introducing Mitsubishi Motors' other models. It is also reported that Mitsubishi Motors will start production of SUVs in China by 2004, with planned sales volume of 20,000 units per year. Mitsubishi Motors is said to be leaning toward establishing a joint venture sales company with Beijing Jeep.

■Production volume by auto manufacturers with which Mitsubishi Motors has a relationship

(Unit)

		1997	1998	1999	2000	2001
Hunan Changfeng Motor Co., Ltd.		2,015	1,050	4,000	10,874	10,408
Southeast (Fujian) Motor Co., Ltd.		2,621	2,778	5,289	19,145	31,027
Harbin Aircraft Manufacturing Corp.	Mini truck				11,737	7,763
	Mini bus				110,270	131,195
	Total	50,018	58,322	86,017	122,007	138,958
Shenyang Aerospace Mitsubishi Motors Engine Mfg. Co., Ltd.	Engine		37	5,342	26,666	26,968
	Transmission			4,357	16,994	16,860

Source: China Automotive Industry Newsletter of Production & Sales, Yearly editions of China Auto

■Chinese auto manufacturers with which Mitsubishi Motors has a relationship

■DaimlerChrysler is studying the possibility of producing Mercedes-Benz's mini-vans at a Chinese production facility owned by China Motor Corp. of Taiwan

China Motor Corp. of Taiwan, which is 14.61% owned by Mitsubishi Motors (5.01% by Mitsubishi Corp.), established a joint venture, Southeast (Fujian) Motor Co., Ltd., in Fujian Prov. in 1995 and started production in 1996. Output volume of small buses and RVs reached 31,000 units in 2001. Secondary construction of production facilities is under way. China Motor Corp. is said to have acquired the manufacturing right in China of the Lancer, Mirage, and Galant from Mitsubishi Motors. The company will increase production capacity of Southeast (Fujian) Motor Co., Ltd. to more than 200,000 units by 2005, with plans to launch new models in the field of small vehicles and to start production of passenger cars. With regard to passenger car production, the company has already applied for government approval for production of the Lancer (1,300cc/1600cc), at a planned price of approx. 100,000 RMB.

In June 2001, it is said that China Motor Corp. and DCX agreed on a conceptual framework in which it will jointly invest 50 million US dollars in a new Chinese joint venture between DCX and Southeast (Fujian) Motor Co., Ltd. or China Motor Corp., to manufacture Mercedes-Benz's mini-van, the Vito, and market the model in Taiwan and mainland China. Though the agreement has not been made public, the feasibility study of the plan will be completed by September 2002.

■Hyundai Motor will also start joint production of passenger cars with Beijing Automotive Group in 2002 and will increase production volume to 200,000 units per year by 2005

In May 2002, Hyundai Motor of Korea signed an agreement with Beijing Automotive Group to establish a equally-owned joint venture company, Beijing-Hyundai Motors Co., Ltd. Production of the Sonata (2000cc) will start by October 2002 and production of the Elantra (1600cc) will also begin in 2004. Production capacity is planned to be 200,000 finished vehicles, 200,000 engines, and 100,000 transmissions by 2005. In the long-term framework, it is a large-scale project with production capacity of 500,000 units per year and a total investment of 1.1 billion dollars by 2010.

■Production volume by auto manufacturers with which Hyundai Motor has a relationship

(Unit)

	1997	1998	1999	2000	2001
Hefei Jianghuai Auto Co., Ltd.	18,930	25,134	34,917	47,889	51,052
Dongfeng Yuda Kia Motors Co., Ltd.	-	-	39	2,423	7,579

Source: China Automotive Industry Newsletter of Production & Sales and Yearly editions of China Auto

■Chinese auto manufacturers with which Hyundai Motor has a relationship

■Strengthening ties with DaimlerChrysler (DCX) will bring Beijing Automotive Group back to life

Beijing Automotive Group, which has strengthened its ties with DaimlerChrysler (DCX) and formed new partnerships with Mitsubishi Motors and Hyundai Motor, was once a group that handled production mainly of small off-road vehicles. However, production of off-road vehicles, including the Cherokee has already shrunk, so that the group's production centers on small trucks, mainly agricultural vehicles. In addition to this, in 2000 Isuzu withdrew a 15% stake that it held in Beijing Light Bus Co., Ltd., a main company for production of small buses. Isuzu also sold shares that it held in Beijing Automotive Group, which made Beijing Automotive Group a more specialized company in production of agricultural vehicles.

It is safe to say that Beijing Automotive Group has found a cure capable of reviving the company through substantial expansion of a partnership with the DCX group in order to ensure medium- and long-germ survival: extension of the period of the joint venture with the DCX group, production of Mitsubishi's Pajero and future expansion of a tie-up, and large-scale joint passenger car production with Hyundai Motor.

■Outline of major companies in the Beijing Automotive Group and Beijing Automotive Industry Equity-controlling Co., Ltd.