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Beijing Benz May Break Even in 2007
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German-US carmaker DaimlerChrysler AG's joint venture with Beijing Automotive Industry Corp expects to break even this year, fueled by growing new product sales.

Gunter Butschek, president and chief executive officer of the 50-50 partnership, said in an interview with China Daily that the company has the potential to break even as it launches new models.

The venture, named Beijing Benz-DaimlerChrysler Automotive Co, has been in the red for the past two years as stiff market competition and high fuel prices caused sluggish sales of its sport utility vehicles (SUVs).

The company was created in August 2005 as an enlarged body of Chrysler's joint venture with Beijing Automotive, which was set up in 1983 as the first Sino-foreign vehicle venture. The Chrysler venture produced SUVs only.

As part of its turnaround plan, Beijing Benz last year launched Mercedes-Benz new-generation E-Class sedans and Chrysler 300C large-sized sedans.

"We are now harvesting the fruits of this turnaround program strongly supported by the launch of new products," Butschek said.

"We are in the process of shifting focus from purely SUVs to standard and luxury sedans."

He said the venture is preparing to launch the Chrysler Sebring mid-sized sedan later this year and Mercedes-Benz C-Class sedans at the end of this year and beginning of 2008.

"However, that does not mean we have given up our SUV heritage. We are also investigating what opportunities we have for the future to strengthen our heritage on the SUV side," he said.

Beijing Benz, which has an annual production capacity of 100,000 vehicles, is also making Mitsubishi Motors' Outlander SUV under a technical licensing deal. But it has halted production of some Chrysler SUV models.

Li Chunbo, an auto analyst with CITIC Securities Co in Beijing, said profit should grow as the company introduces Mercedes-Benz vehicles.

"Mercedes-Benz is a fat-margin brand and has a strong brand image in China. Therefore, Beijing Benz should be fairly profitable in the near term as long as it has a stable sales growth," Li said.

Butschek said Mercedes-Benz E-Class and Chrysler 300C built at his firm are well received by Chinese buyers. But he didn't reveal their sales figures in the first quarter of this year.

The venture is localizing more spare parts for Mercedes-Benz sedans in order to improve profitability in China, he said.

According to China's auto industry policy, the value of locally purchased spare parts should account for at least 40 percent of the total value of a vehicle made in China. Otherwise, vehicle will be charged import tariffs.

"But I must admit it's a tough job to get local supply base to the level of our requirements," Butschek said.

(China Daily April 26, 2007)

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