Beijing Jeep turns profit in 2003

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Last updated at: (Beijing Time) Monday, January 12, 2004

Beijing Jeep turns profit in 2003

Beijing Jeep, the first Sino-foreign auto joint venture in China, announced on Saturday that it became profitable in 2003 for the first time over the past five years.

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Beijing Jeep, the first Sino-foreign auto joint venture in China, announced on Saturday that it became profitable in 2003 for the first time over the past five years.

The joint venture, between Beijing Automotive Industry Holding Corp and German-US DaimlerChrysler AG, reported 20 million yuan (US$2.4 million) in pre-tax profits last year, said Beijing Jeep Chairman An Qingheng.

"The profit is expected to reach 200 million yuan (US$24 million) this year," An told China Daily.

An made the profit projection on Saturday when the joint venture launched the Outlander CUV (car-based utility vehicle) of Japan's Mitsubishi Motor Corp, 37.3 per cent owned by DaimlerChrysler.

An attributed the joint venture's milestone financial turnaround largely to robust growth in vehicle sales. The joint venture sold 20,000 vehicles last year, up from 9,000 units in 2002, he said.

He said Beijing Jeep is expected to sell 50,000 vehicles this year.

The joint venture, which started operation in 1984 and reigned in China's sport utility vehicle (SUV) market, ran into heavy losses from 1998 to 2002 due to its outmoded product portfolio, sluggish sales and entry of many rivals into the market.

Beijing Jeep Executive Vice-President Tong Zhiyuan said that the newfound profitability also resulted from the joint venture's employment cuts, with the core-business workforce dropping to 3,200 at the moment from 8,000 in 2000.

"Redundant workers have been re-employed in our non-core businesses, which will be spun off soon as part of our restructuring," he told China Daily.

Beijing Jeep's current product portfolio also includes Mitsubishi's Pajero Sport and the Chrysler Jeep 2500 and Grand Cherokee SUVs.

It will produce DaimlerChrysler's Mercedes-Benz E and C-class sedans next year as part of a co-operation deal worth 1 billion euros (US$1.27 billion) which Beijing Automotive and the German-US auto giant clinched last September.

"There will be no problem for Beijing Jeep's profit to increase in the years to come with sales growth, especially that of the Mercedes-Benz sedans, because they will have much higher profit margins than existing products," Zhang Xin, an auto analyst of Guotai & Jun'an Securities Co, said in an interview.

"However, the joint venture's foreign side will profit best as the Mercedes-Benz sedans will mainly use imported kits."

Beijing Automotive and DaimlerChrysler now control 57.4 and 42.6 per cent stakes of the joint venture respectively.

DaimlerChrysler will increase its share in the joint venture and Mitsubishi will also have a stake, according to An.

"We have agreed that the foreign side will have a combined 50 per cent stake and we will release a specific plan at a proper time,'' An said. "We will be happy about that as more foreign investment will be injected into the joint venture."

As for its new product, the four-wheel-drive Outlander will be equipped with 2.4-litre engine and will retail for 215,800 yuan (US$26,100).

The joint venture will produce 25,000 Outlanders this year, according to Paul Alcala, the company's chief executive officer.

"We've positioned the Outlander more as a sedan than a SUV in the market... The launch of the model is a good signal of our intention to be a full-line manufacturer, including SUVs and sedans," Alcala said.

Alcala said earlier that the joint venture will also introduce Chrysler's sedans in the near future.

"But we will not get away from SUVs and we aim to become the biggest SUV producer in China (again)," he said.

At present, SUVs account for nearly 10 per cent of China's passenger vehicle market. Competition in the domestic SUV market will increase with the launches of more foreign-brand models in China. Japan's Honda will produce CRVs during the first quarter of this year at its joint venture plant in Central China's Hubei Province with Dongfeng Motor Corp. The CRV will go head-to-head with the Outlander, Alcala said.

Beijing Jeep is one of Beijing Automotive's business pillars.

Beijing Automotive also runs a car joint venture with Republic of Korea auto giant Hyundai Motor and produces commercial vehicles through its wholly-owned subsidiary Futon, which will introduce Mercedes-Benz heavy-duty trucks.

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