China's Geely expands, eyes global market

Hong Kong, Mar 27: Chinese car maker Geely Automobile Holdings plans to double capacity next year and set up assembly plants in North America and Europe, as it looks to expand beyond a fiercely competitive home market.

The homegrown firm, which has a deal with Manganese Bronze Holdings Plc. to make London black taxi cabs in China, plans to buy stakes in four greenfield, or new, plants in China from its parent with total annual capacity of 300,000 cars by 2008, Executive Director Lawrence Ang said.

That local expansion will bring Geely's yearly capability to 600,000 units, without taking into account the London cab venture due to start next year with initial capacity of 30,000 units.

Beyond its home turf, Geely -- founded by legendary Chinese entrepreneur Li Shufu -- is in talks to set up 4-5 complete knock-down (CKD) or full-assembly plants in Europe, North America and even South America and Africa.

''Overseas markets appreciate the value of our cars. They treat us fairly,'' Ang said in a telephone interview.

Geely is one of China's few privately run auto concerns, and one of its most ambitious.

Selling some of China's cheapest cars under the Geely and Maple brands, Geely nonetheless predicts a tough domestic market this year with prices for economy and medium-priced cars under persistent pressure because of competition, Ang said.

''I don't dare switch on my computer now. Car makers cut prices every day,'' he said.

But ''we're expanding towards our sales and production target of 1 million cars a year by 2010,'' he added.

China remains a difficult market for low and medium-priced cars as most customers chase brands. But car sales remain robust, with volume sales up 29 percent in January-February.

Geely shares have gained 31 percent so far this year, lagging Brilliance China , BMW's local partner, which has risen 60 percent, but beating an 18.3 percent gain by Dongfeng Motor , China's No.3 auto maker and venture partner of Honda Motor , Nissan Motor and PSA Peugeot Citroen .

Geely trades at 20 times forecast earnings, against 17 times for Dongfeng.

OVERSEAS GROWTH Geely has set up assembly ventures in Indonesia with its largest distributor, PT Astra International Tbk , and in Russia with Automobiles and Motors of Ural.

Local assembly helps minimise taxes, and foreign partners could grant Geely easier access to overseas markets.

Ang said the Indonesia venture would start production next month, while cars would roll out of the Russian plant in the second half of this year. He said both ventures would have initial capacity of about 30,000 cars.

Geely sees Indonesia and Russia as test grounds and, if successful, would swiftly repeat the local assembly programme in Europe and the Americas next year.

Local rival Chery Automobile Co., DaimlerChrysler AG's China partner, also plans to build a plant in Russia in 2009 to produce 200,000 cars a year. Chery sold about 12,000 cars to Russia last year.

Geely expects to sell 240,000 cars this year, more than a third more than last year's 175,635 units.

(For China 2006 car sales, please click [ID:nSHA313808]) In China, Geely would invest US million in two joint ventures to tap the market in Hunan province and Gansu's Lanzhou city.

It also plans to buy into another two new plants, each with capacity of 100,000 cars, in Jinan in Shandong province and Ningbo in Zhejiang from its parent, Zhejiang Geely Holding Group Co., probably next year, Ang said.

''The JVs will buy two new car plants with an initial capacity of 50,000 units each,'' Ang said, adding he expected regulatory approval for these acquisitions in two months.

Reuters