UPDATE 2-China’s Brilliance Auto halts Europe exports -execs

* Halts car exports to Europe on poor sales

* Seeking new partner, no timetable to resume exports

* Chinese automakers seek to improve quality via M&A

* Chinese automakers urged to focus on booming home market
(Adds quality issues facing Chinese automakers, M&A deals)

By Fang Yan and Edmund Klamann

SHANGHAI, April 29 (BestGrowthStock) – Brilliance Auto, BMW’s
(BMWG.DE: ) partner in China, has halted its car exports to
Europe after its in-house designed BS4 and BS6 sedans met with
a cool reception, highlighting the quality issues facing
Chinese automakers eager to tap mature markets.

Brilliance was the only Chinese automaker that had managed
to squeeze into the highly competitive European market,
dominated by Volkswagen AG (VOWG.DE: ), PSA Peugeot Citroen
(PEUP.PA: ) and Fiat (FIA.MI: ), with a bulky order four years ago.

But sales struggled after poor crash test results and
negative publicity, two company executives told Reuters.

Its BS6 mid-sized sedan achieved a rating of just one star
out of five in a crash test by German agency ADAC, while the
slightly smaller BS4 failed the test completely.

“We have stopped exports to Europe. For now, we have no
timetable for resuming the business,” said one of the
executives with direct knowledge of the matter, blaming the
poor reception for the sedans in part on the difficulty of
keeping up with changing European regulations. The executives
declined to be identified due to the sensitive nature of the
matter.

Brilliance’s setback in the European market rings alarm
bells for ambitious Chinese automakers gearing up to enter the
global arena, and highlights the benefits of buying up Western
brands and technologies as a short-cut to success abroad.

Zhejiang Geely Holding Group (0175.HK: ), which makes small,
inexpensive vehicles, signed a definitive agreement last month
to buy Ford Motor’s (F.N: ) premium Volvo brand for $1.8 billion.

Beijing Automotive Industry Holding Co has also acquired
some Saab technologies which it is incorporating in its
soon-to-be launched Beijing brand sedans.

Brilliance, parent of Brilliance China Automotive Holdings
(1114.HK: ), has so far refrained from making any major overseas
acquisitions. But Chairman Qi Yumin told reporters last week he
would not rule out taking over some Western design houses.

NOT GIVING UP

In 2006, Brilliance secured a deal to ship 158,000 sedans
to Europe over a five-year period, the largest auto order ever
from the developed world for a Chinese auto maker.

The total sales tally for the two models, however, reached
only a few thousand.

Company executives told Reuters they had not given up on
the European market and hoped to resume sales there again in
the future with products that could meet new EU emissions
standards.

“The BS4 and BS6 were made with Euro 4 specifications in
mind. When we resume exports we will come up with cars and meet
the Euro 5 standards,” said one executive.

Chinese automakers, from state auto group SAIC Motor Corp
(600104.SS: ) to Warren Buffett-backed BYD (1211.HK: ), are
striving to raise their domestic profile to compete with
foreign rivals such as Toyota Motor (7203.T: ) and Honda Motor
(7267.T: ).

But rather than rushing into unfamiliar markets when
economic uncertainties and rising protectionism have raised the
bar for new entrants, Chinese automakers should focus on their
booming home turf, several industry executives and observers
said.

“At a time like this, the best strategy for a Chinese
national brand is to step up its presence in China while
maintaining a foothold overseas,” said Huang Zherui, an analyst
with CSM Worldwide, a global industry consultancy.

Brilliance is China’s ninth-largest auto maker with a 2.6
percent market share as of the end of last year, compared with
domestic leader SAIC’s 19.8 percent, according to official
data.

It sold 348,300 vehicles in 2009, up 22 percent from a year
earlier, lagging a 46 percent gain in the overall market, now
the world’s largest.

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(Editing by Lincoln Feast)

UPDATE 2-China’s Brilliance Auto halts Europe exports -execs