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How the parent of BMW’s China partner arrived at the brink of bankruptcy

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BMW Brilliance sold a record 550,000 vehicles last year and made 7.6 billion yuan in profit, helping generate dividends of HK$1.8 billion ($232.17 million) for Huachen.In the early days of China’s automotive boom, Huachen was a competitive player in its own right, selling more than 200,000 vehicles in 2013 under its Zhonghua, or “China” brand.

“We thought we would be the first domestic carmaker to sell premium cars well in China,” said a former Huachen executive who now works for another Chinese automaker.

But its competitors sped ahead while Zhonghua’s domestic sales slumped to just 25,270 cars last year and only 5,312 in the first three quarters of 2020, according to consultancy LMC.Chinese rivals such as Geely and Great Wall developed stronger products and technology, while state backed SAIC Motor and Guangzhou Automobile grew with the know-how of joint venture partners.

Huachen, by comparison, used a scattershot approach to planning, with vehicles such as a midsize sedan and compact SUV that were not complementary, said Yale Zhang, head of consultancy AutoForesight.

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“Zhonghua did not plan its products systematically,” he said. “That made their products fail to meet the fast-changing market demand in China.”

About a decade ago, consultants hired by Huachen warned it against plans to develop a premium MPV (multi-purpose vehicle), citing competition, an unclear outlook for the segment and Huachen’s technology disadvantage compared with the popular Buick GL8 made by General Motors.

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Huachen, led by longtime Chairman Qi Yumin, formerly vice mayor of the port city of Dalian, approved the Huasong project anyway.

“Qi was too confident about his plans. Unlike officials with deep experience in the auto industry who tend to seek opinions from different departments, Qi made decisions on his own,” one person familiar with Qi and Huachen management said.

Qi, who retired last year, could not be reached for comment.

Last year, Huachen sold just 1,184 Huasong MPVs, while GM sold around 150,000 GL8s in China.

Efforts to freshen Huachen’s portfolio helped lead to its current predicament. Fourteen bonds that Huachen has said it is unable to repay were issued between 2017 to 2020 to roll over debt, for working capital and to fund product upgrades and two plant projects.

In one 7.5 billion yuan project, Huachen planned a revamp of a factory to be completed this year to create capacity for 100,000 vehicles, including 30,000 electric ones, based on a new car platform.

The investment came way too late, as China’s saturated electric vehicle market underwent a painful consolidation after Beijing cut generous purchase subsidies. By then, rivals like Geely and BYD had rolled out more sophisticated EV strategies.

“Huachen missed the golden time when Chinese brands rose and all of a sudden it fell behind smaller rivals,” the former Huachen executive said.

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As recently as August, Huachen Vice President Qi Kai, who is not related to Qi Yumin, told an industry conference that the group planned to sell around 1.95 million vehicles annually by the end of 2025, including 1 million from the BMW Brilliance JV.

Analysts call that target unrealistic. The group sold just 800,000 vehicles last year – the majority from the BMW Brilliance joint venture.

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