C hina A utomotive R eport

Executive Summary

五月“May” 2006

Market On The Boil

Sales continue to climb into April with passenger vehicle sales totalling 383,571 units.

This new record figure is 44% higher than April’s figure of last year. Through the first four months of 2006, the market is up a total of 60%

The compact segment, the market’s largest, is adding most of the new volume, followed by the subcompact. In April alone, the two segments together achieved an increase in sales of some 90,000 units over April 2005.

(Continued on page 1-2)

Market Summary 1-2 Product Watch 1-7 Industry News 1-10 Current Climate

Market On The Boil (Continued from page 1-1) The majority of the new volume (52%) in So what conclusions can we draw from all these two segments was achieved with of this? models released over the last year. New models will generally spur sales in a In the subcompact segment, the largest market, and China’s market has not been individual volume growths were recorded short of new releases over the last year. by Nissan’s Tiida and Geely’s Freedom But this cannot be the only driving force Ship, models which were available in the behind the boom. market last April. The next five highest were all new: Honda’s City, SGM’s Lova, Some have speculated that the rural Peugeot’s 206 and Hyundai’s new communities are now out buying cars too, Accent. but the recent strong growth from the midsize and luxury segment cannot be It is a similar story in the compact attributed to those consumers either. segment. The highest volume growers were Chery’s Qiyun and SVW’s The market could be overheating. We Santana3000, both of which are over a know sales on finance are not a year old. But then the next three models, significant proportion of overall sales, but the Kia Cerato, Ford Focus and BYD F3, banks are lending to business, and were all released within the last year. businessmen seem to be out buying the latest and greatest new cars. It should be noted though that Santana3000 volumes were down 73% in Whether this is now sustainable growth or April last year, so much of its new volume not remains to be seen. Things should growth is old volume recaptured. become clearer over the coming months.

China’s Sales, Growth and Forecast 4,000 80 3,500 70 3,000 60 2,500 50 2,000 40 1,500 30

Units Sold ('000s) 1,000 20

500 10 YoY % Growth Forecast 0 0 2001 2002 2003 2004 2005 2006 = Actual = Forecast

China Automotive Report - Executive Summary ------May 2006 1-2 Market Summary Market Summary

China’s passenger vehicle market continues to grow at a blistering rate, with sales through the first four months of the year up 60%. The luxury segment grew the fastest, up 159%, though this can largely be attributed to a recent tax hike on larger engined vehicles which drove consumers to buy prior to the April 1st deadline.

Sales by Segment

April YTD-Apr Segment Net Net Sales 06 06/05 Sales 06 06/05 Share'06 Growth Growth Micro Car 24,248 -1% -288 105,011 21% 18,387 8%

Subcompact 106,469 62% 40,724 354,667 71% 147,213 26%

Compact 145,030 51% 49,067 491,978 62% 188,892 37%

Midsize 62,024 50% 20,543 209,879 58% 77,334 16%

Luxury 12,481 59% 4,632 43,912 149% 26,283 3%

SUV 17,504 16% 2,356 77,870 62% 29,771 6%

SMPV 3,328 -19% -773 12,916 9% 1,058 1%

MPV 12,487 11% 1,270 50,960 56% 18,258 4%

Total 383,571 44% 117,531 1,347,193 60% 507,196 100%

Monthly Car Sales (2004-2006)

2006 323,216 261,184 379,270 383,571

2005 170,957 149,992 246,446 266,040 240356 283,489 265,257 243,287 286,959 266,437 314,389 369,211 2004

400,000

350,000

300,000

250,000

200,000

150,000

100,000 60% 50,000 YTD

Units 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

China Automotive Report - Executive Summary ------May 2006 1-3 Passenger Car Imports Market Summary

Passenger vehicle imports jumped 97% through the first quarter of 2006 with a total of 44,615 cars and SUVs arriving from overseas. Japan remains the largest source of foreign vehicles, followed by Germany. The cause of this large jump in imports could be down to the increase in excise tax for large engined vehicles, which was implemented at the end of the first quarter.

Trend of Imports (2005-2006)

2006 44,615 2005 22,651 35,059 43,713 41,083 50,000

45,000

40,000

35,000

30,000

25,000

20,000 Imports Q1 2006 Total: 44,615 15,000 Cars: 21,382 10,000 SUVs: 23,233

5,000 Total Imports 2005 Units 142,502 0 Q1 Q2 Q3 Q4

Top 10 Import Origins for Q1 2006 14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 Units South Japan Germany US England Sweden France Belgium Slavakia M exico Korea

Q1-2006 13,271 12,557 6,360 5,878 1,761 1,377 923 777 569 564

China Automotive Report - Executive Summary ------May 2006 1-4 Passenger Car Exports Market Summary

Passenger vehicle exports totaled 17,378 units through the first quarter of 2006, a whopping 453% increase on the total recorded through the first quarter last year. Belgium received most of the exported vehicles, which consist mostly of the Honda Jazz. A new market to enter the top ranks is Malaysia, which is now receiving Cherys. Some 3,629 of the units heading to Malaysia in the first quarter were from Chery. Trend of Exports (2005-2006)

2006 17,378 2005 3,142 6,994 10,133 12,695 20,000

18,000

16,000

14,000

12,000 Exports Q1 2006 10,000 Total: 17,378 Cars: 16,813 8,000 SUVs: 565 6,000 Total Exports 2005 4,000 32,964

2,000

Units 0 Q1 Q2 Q3 Q4

Top 10 Export Destinations for Q1 2006 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500

Units 0 Belgium M alaysia Italy Russia Syria Cuba Columbia Algeria Venezuela Egypt

Q1-2006 4,432 3,934 1,561 1,401 1,383 948 544 456 420 336

China Automotive Report - Executive Summary ------May 2006 1-5 Manufacturer Market Shares Market Summary

SGM’s sales of 129,666 units firmly place it as the leading vehicle manufacturer in China through the first four months of 2006. SVW trails SGM by nearly 18,000 units in second place, but records the second largest growth out of the top ten manufacturers, with sales up 110%. The largest growth in the top ten was achieved by Toyota, up 132%. Currently ranked in seventh, expect to see this Japanese giant rise through the charts.

YTD April Sales By Manufacturer Units 130,000

120,000 2006 110,000 2005 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 SGM SVW Chery FAW-VW Beijing Guangzhou Tianjin FAW-TAIC Geely Dongfeng Hyundai Honda Toyota Ltd.

Top 10 Manufacturers’ Sales Rank

Rank Manufacturer 2006 2005 Growth 1 SGM 129,666 72,508 79% 2 SVW 111,946 53,186 110% 3 Chery 101,807 51,655 97% 4 FAW-VW 93,548 48,927 91% 5 Beijing Hyundai 92,545 77,724 19% 6 Guangzhou Honda 82,338 63,239 30% 7 Tianjin Toyota 72,485 31,268 132% 8 FAW-TAIC 72,125 60,256 20% 9 Geely 70,384 38,898 81% 10 Dongfeng Ltd. 67,969 38,739 75%

China Automotive Report - Executive Summary ------May 2006 1-6 Brand Market Shares Market Summary

VW maintains its market share of 15% through to the fourth month of the year, with 205,494 units sold. GM and Hyundai come in at second and third place respectively. These top three brands and quite spread apart with 60,000 units separating first and second, and 35,000 units separating second and third. Beyond these top three it is a much tighter pack.

Brand Share YTD April 2006 BYD 1% Ford Maz da Fiat 1% Suzuki 3% 3% Peugeot/Citroen Kia Soueast 1% 5% Mitsubishi 1% Geely 5% 2% Changhe 1% 5% Harbin Jianghuai Auto 1% Nis s an 2% Great Wall 1% 5% BMW 1% FAW Xiali Chang'an 1% 5% Dongfeng 0% Other Jiangling 0% Toyota Brilliance 0% 6% 11% DC 0% Honda Zhongxing 0% 7% FAW 0% Jinbei 0% Chery Beiqi 0% 8% Hyundai Jiangnan 0% GM VW 8% Foton 0% 15% 11% Subaru 0% Guizhou Skylark 0% Brand Sales Rank Rank Brand Sales Rank Brand Sales 1 VW 205,494 19 Jianghuai Auto 12,337 2 GM 144,890 20 Great Wall 12,004 3 Hyundai 109,342 21 Soueast 11,640 4 Chery 101,807 22 Zhonghua 8,879 5 Honda 92,396 23 DFM-Liuzhou 7,445 6 Toyota 76,718 24 Changhe 7,418 7 FAW Xiali 73,144 25 BMW Brilliance 6,795 8 Nissan 70,407 26 DC 5,922 9 Geely 70,384 27 Jiangling 5,635 10 Peugeot/Citroen 64,703 28 Chang'an 5,563 11 Suzuki 62,285 29 Zhongxing 4,399 12 Ford 38,916 30 Jinbei 3,566 13 Mazda 37,511 31 Beiqi Auto 2,620 14 Kia 28,107 32 FAW 2,219 15 Harbin 24,682 33 Beiqi Foton 350 16 BYD Auto 20,491 34 Chongqing Lifan 320 17 Mitsubishi 16,119 35 Jiangnan Auto 256 18 Fiat 12,408 36 Guizhou Skylark 21 * Note: Brand sales are the total sales from all the brand’s respective joint ventures China Automotive Report - Executive Summary ------May 2006 1-7 Best Selling Models

FAW Xiali’s Charade retakes pole position as the best selling vehicle in the Chinese car market in April. The Jetta, which held it last month, was shunted into second place. The only difference between April’s best sellers and those through the first four months of the year is the positions of the Accord and QQ. Though the Accord sold well in April, it is the

QQ which just outsells it on average YTD. Product Watch Sales April 2006 24,000 19,345 20,000 16,895 15,988 15,363 16,000 13,208 12,000

8,000

4,000

0 Units Charade Jetta Buick Excelle Elantra Accord

Sales YTD 2006 80,000 65,908 70,000 60,173 59,379 60,000 50,920 50,000 47,893 40,000 30,000 20,000 10,000 0 Units Charade Elantra Buick Excelle Jetta Chery QQ

China Automotive Report - Executive Summary ------May 2006 1-8 Model Volume Movements

Nissan’s Tiida once more acquires more new volume in the month than any other model. Surprisingly, the top five volume growers in April are all models which have been available in the market for over 12 months. SVW accounts for two of them with the Passat and Santana3000 coming in at second and fifth place respectively. Product Watch

Top 10 Volume Growers in April Rank Manufacturer Model Volume Growth YoY 1 Dongfeng Ltd. Tiida 7,748 2 SVW Passat 7,516 3 Chery Chery Qiyun 7,010 4 Geely Freedom Ship 6,945 5 SVW Santana3000 6,824 6* Dongfeng Yueda Kia Cerato 6,787 7* Chang'an Ford Focus 6,666 8* Tianjin Toyota Reiz 5,465 9* SGM Lacrosse 4,672 10* BYD Auto F3 4,512 Others 92,615 Total 156,760

Volume Growth 156,760 Volume Decline -34,574 Net Growth 123,589

Top 10 Volume Decliners in April Rank Manufacturer Model Volume Decline YoY 1 Chang'an Suzuki Alto -2,932 2 Soueast Lioncel -2,667 3 SGM Buick Regal -2,473 4 Guangzhou Honda Fit -2,392 5 Dongfeng Yueda Kia Accent -2,201 6 Beijing Hyundai Elantra -2,071 7 SGM Sail -1,957 8 SVW Santana -1,956 9 Changfeng Group Pajero -1,726 10 Great Wall Motors Safe -1,632 Others -17,222 Total -39,229

* Note: Model released within the last 12 months China Automotive Report - Executive Summary ------May 2006 1-9 Monthly Watch of New Models

Toyota Camry

Guangzhou Toyota’s Camry is sixth generation model. It is produced in a new 200,000 unit capacity facility in Nansha Guangdong province. Though orders are being Product Watch taken now, the first deliveries are expected in June.

Launch Date Segment Engine Price (RMB)

May 23 Midsize 2.0L – 2.4L 197,800 - 269,800

Competitor Comparison

Mazda 6 Ford Mondeo 195k – 228k RMB 186k – 250k RMB

Landwind Fengshang

Landwind’s new small MPV, Fengshang, is the harvest of four years’ effort between Changan and Jiangling. Rumours are afoot that this vehicle will also be heading to European markets in the future.

Launch Date Segment Engine Price (RMB)

May 18 SMPV 1.6L – 2.0L 95,800 – 109,800

Competitor Comparison

VW Caddy Mazda Premacy 130k – 167k RMB 138k - 165k RMB

China Automotive Report - Executive Summary ------May 2006 1-10 Price Watch

With Toyota’s Camry now hitting the market, Toyota has done some shifting by dropping the price of the Reiz by 10%. Nissan drops the price of another Tiida variant, despite very strong sales of the model. Honda, amid increasing competition and rampant growth in the midsize segment, has dropped the price of the Accord by 9%. Product Watch

Manufacturer Model New Price (RMB) Old Price (RMB) Dongfeng Ltd Tiida 1.6G MT 130,800 139,800 Tianjin Toyota Reiz 2.5V AT/MT Standard 238,500 247,500 Guangzhou Honda Accord 2.4AT Standard 2006 225,800 241,800

Tiida Reiz Accord 9% 10% 9%

Price Tracker

3 3 4 5 5 6 0 0 0 0 , 04 , 05 , 06 , , Q, Q, 03 Q Q Q, 0 Q, 0 1 3Q, 03 1Q, 04 3Q 1Q, 05 3Q 1Q 1 3 1 3Q, 04 1 3 1Q, 0% 0% -10% -10%

-20% -20% -30% -30% Charade 7101 Bora 1.6L (std) -40% -40% 0% 0% -10% -10% -20% -20% -30% -30% % Change % % Change % -40% Santana Basic -40% Mondeo 2.0 0% 0% -10% -10% -20% -20% -30% -30% Accord 2.4L Audi A4 1.8L -40% -40%

China Automotive Report - Executive Summary ------May 2006 1-11 Market News

Proton and Chery to look into FAW to target international midsize opportunities models Proton has announced that it has inked FAW unveiled at the Hangzhou Auto a feasibility study with Chery to look into Show recently the Benteng, is newly supplying the Chinese models to both designed midsize sedan. FAW claims Malaysia and other South East Asian that the new model, expect to hit the markets as well as supplying China with market around July, will compete with Proton models. The study is expected to the likes of the Accord, Passat, Teana take about three months. and Royaum. Though largely based on the Mazda 6, the Chinese manufacturer Geely’s new plant states that the model has been Geely is to build a new plant in Jinan, completely redesigned and is now Shandong province. The start of essentially a Chinese designed vehicle. Industry News construction is slated for the beginning It will sport 2.0 and 2.3 litre engines, and of June. Initial capacity is expected to be is expected to sell for between 200,000 at 100,000 units. and 250,000 RMB. SAIC profits up 47% in Q1 2006 Chery to move sales HQ to Shanghai Shanghai Automotive Industry Chery, China’s best selling domestic car Corporation (SAIC) has announced that brand, is to move its sales headquarters its first quarter net profit this year was up from Anhui to Shanghai. The move is 47% over the same period last year. expected to be a gradually one, starting According to its report, the company’s June and ending before the end of the business income amounted to 2 billion year. Part of their research and RMB (US$1.25 billion) during the period, development operations may also move of which 223 million RMB (US$27.9 to Shanghai as well. million) was net profit. DPCA expects profit in 2006 PSA Peugeot Citroen’s joint venture with Dongfeng Motor Corp has said that they expect to make a profit in 2006 following losses for the last two years. Cost cutting and rising sales are cited as the primary instigators of this turnaround. Profits are expected to reach 400 million RMB (US$50 million) this year, following losses of 360 million RMB (US$45 million) in 2005 and 985 million RMB China’s Accord and (US$123 million) in 2004. Camry Buster?

China Automotive Report - Executive Summary ------May 2006 1-12 Supplier News

Visteon opens air-con plant BMW to increase local content The world’s second largest auto parts BMW Group has announced that it will supplier, Visteon, recently opened a new more than triple the amount of US$65 million facility which will make air components it sources from China for its conditioning components. The facility, JV with Brilliance Automotive Corp. based in Dalian, in China’s northeastern BMW Brilliance Automotive said that Liaoning province, has a capacity to they will increase the value of parts produce over one million air-con sourced domestically from 870 million compressors a year and plans to also RMB (US$109 million) in 2005 to 3 export the components to South Korea billion RMB (US$375 million) by 2007 and other nations. Automation sector to diversify

Bosch begins large scale investment Industry News International companies providing German auto parts giant Bosch recently automation systems to the announced plans to invest 160 million manufacturing sector have stated that euros (US$203 million) in expanding its they must diversify and begin offering facilities in Changsha and Suzhou. more energy efficient systems to beat Company executives stated that this domestic players. Companies like ABB was just the beginning of an investment Group, Rockwell and Siemens Corp, plan which will see the company pour who all have investments in China, say 620 million euros (US$787 million) into that though growth has been healthy to China over the next two years. In 2005, date, only with further research and Bosch’s sales totaled 1.2 billion euros development will they be able to (US$1.53 billion) in China, a 15 per cent maintain the momentum achieved over increase from 2004. the last few years.

Policy News

Removal of small car restrictions The NDRC announced earlier this year that in an effort to promote the use of smaller, more fuel efficient vehicles, that cities which had restrictions on small cars driving on their roads, remove those restrictions. This was to go into effect by the end of March. Shanghai, Beijing and Wuhan have now announced that the restrictions have ‘mostly’ been removed. Other cities have yet to make any announcement.

China Automotive Report - Executive Summary ------May 2006 1-13 Upcoming China Auto Industry Events

Date Event Facility

Jul./Aug. 27-5, The 9th Harbin International Automobile Harbin International Convention 2006 Exhibition & Exhibition Center

Aug. 24-28, The 11th Dalian International Automotive Dalian Xinghai International 2006 Industry Exhibition Exhibition Center

The 10th Shenzhen International Automobile Shenzhen Hi-Tech Fair Sept TBA, 2006

Exhibition (SHENZHEN MOTOR' 2006) Exhibition Centre, Shenzhen Industry News

Shanghai Everbright Convention Sept. 6-8, 2006 Automotive Testing Expo China & Exhibition Center, Shanghai

Suzhou High & New Sept. 15-17, 2006 China Auto Part & Component Supplier International Automobile 2006 Convention Exhibition Center, Suzhou

Sept. 21-30, 2006 Western China International Automotive Xi'an Automobile Exposition 2006 Industry Exposition Center, Shaanxi

Sept./Oct. 29-5, The Tianjin Binhai International The 2006 Tianjin International Automobile Show 2006 Exhibition & Convention Center

Nov. 19 – 27 China International Exhibition Auto China 2006 2006 Centre (CIEC), Beijing

Shanghai New International Nov./Dec. 2006 Automechanika Shanghai Expo Centre

Please confirm with the organiser or facility before making arrangements. Event dates and locations can change.

China Automotive Report - Executive Summary ------May 2006 1-14 Understand the Territory

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