C hina A utomotive R eport Executive Summary

五月“May” 2006

Market On The Boil

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

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)

C hinautomotiveeport

Executive Summary

AR

China Automotive Report - Executive Summary ------------------------------------ May 2006

Current Climate

(Continued from page 1-1)The majority of the new volume (52%) in these two segments was achieved with models released over the last year.

In the subcompact segment, the largest individual volume growths were recorded by Nissan’s Tiida and Geely’s Freedom Ship, models which were available in the market last April. The next five highest were all new: Honda’s City, SGM’s Lova, Peugeot’s 206 and Hyundai’s new Accent.

It is a similar story in the compact segment. The highest volume growers were Chery’s Qiyun and SVW’sSantana3000, both of which are over a year old. But then the next three models, the Kia Cerato, Ford Focus and BYD F3, were all released within the last year.

It should be noted though that Santana3000 volumes were down 73% in April last year, so much of its new volume growth is old volume recaptured.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2002 2003 2004 2005 2006

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China’s Sales, Growth and Forecast

Market On The Boil

So what conclusions can we draw from all of this?

New models will generally spur sales in a market, and China’s market has not been short of new releases over the last year. But this cannot be the only driving force behind the boom.

Some have speculated that the rural communities are now out buying cars too, but the recent strong growth from the midsize and luxury segment cannot be attributed to those consumers either.

The market could be overheating. We know sales on finance are not a significant proportion of overall sales, but banks are lending to business, and businessmen seem to be out buying the latest and greatest new cars.

Whether this is now sustainable growth or not remains to be seen. Things should become clearer over the coming months.

= Actual= Forecast

1-2


Market Summary

Monthly Car Sales (2004-2006)

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.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

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

20062005

2004

Units

369,211314,389266,437286,959243,287265,257283,489240356266,040246,446149,992170,957

383,571379,270261,184323,216

60%YTD

YTD-AprApril

507,196

18,258

1,058

29,771

26,283

77,334

188,892

147,213

18,387

Net Growth

117,531

1,270

-773

2,356

4,632

20,543

49,067

40,724

-288

Net Growth

44%

11%

-19%

16%

59%

50%

51%

62%

-1%

06/05

100%60%1,347,193383,571Total

4%56%50,96012,487MPV

1%9%12,9163,328SMPV

6%62%77,87017,504SUV

3%149%43,91212,481Luxury

16%58%209,87962,024Midsize

37%62%491,978145,030Compact

26%71%354,667106,469Subcompact

8%21%105,01124,248Micro Car

Share'0606/05Sales 06Sales 06Segment

Mar

ket S

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Sales by Segment

1-3


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)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Q1 Q2 Q3 Q4

20062005

Passenger Car Imports

41,08343,71335,05922,65144,615

Mar

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Units

1-4

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

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

Japan Germany South Korea

US England Sweden France Belgium Slavakia M exicoUnits

Top 10 Import Origins for Q1 2006

Imports Q1 2006Total: 44,615Cars: 21,382SUVs: 23,233

Total Imports 2005142,502


Passenger Car Exports Mar

ket S

umm

ary

1-5

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)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Q1 Q2 Q3 Q4

20062005 12,69510,1336,9943,142

17,378

Units

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

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

Belgium M alaysia Italy Russia Syria Cuba Columbia Algeria Venezuela EgyptUnits

Top 10 Export Destinations for Q1 2006

Exports Q1 2006Total: 17,378Cars: 16,813SUVs: 565

Total Exports 200532,964


Manufacturer Market Shares

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.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

SGM SVW Chery FAW-VW BeijingHyundai

GuangzhouHonda

TianjinToyota

FAW-TAIC Geely DongfengLtd.

20062005

YTD April Sales By ManufacturerUnits

Mar

ket S

umm

ary

75%38,73967,969Dongfeng Ltd.1081%38,89870,384Geely920%60,25672,125FAW-TAIC8

132%31,26872,485Tianjin Toyota730%63,23982,338Guangzhou Honda 619%77,72492,545Beijing Hyundai591%48,92793,548FAW-VW497%51,655101,807Chery3

110%53,186111,946SVW 279%72,508129,666SGM 1

Growth20052006ManufacturerRank

Top 10 Manufacturers’ Sales Rank

1-6


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.

Other11%

Guizhou Skylark 0%

Jinbei 0%FAW 0%

BMW 1%

Jianghuai Auto 1%

BYD 1%

Changhe 1%Mitsubishi 1%Soueast 1%

Harbin2%

Fiat 1%

Great Wall 1%

Chang'an 1%Dongfeng 0%

VW15%

GM11%

Hyundai8%

Chery8%

Honda7%

Toyota6%

Mazda3% Kia

2%

Ford3%Suzuki

5%Peugeot/Citroen

5%Geely5%

Nissan5%

FAW Xiali5%

Brilliance 0%Jiangling 0%

DC 0%Zhongxing 0%

Beiqi 0%Jiangnan 0%Foton 0%Subaru 0%

Brand Share YTD April 2006

16,119Mitsubishi1720,491BYD Auto1624,682Harbin1528,107Kia1437,511Mazda13

12,408Fiat18

38,916Ford1262,285Suzuki1164,703Peugeot/Citroen1070,384Geely970,407Nissan873,144FAW Xiali776,718Toyota692,396Honda5

101,807Chery4109,342Hyundai3144,890GM2205,494VW1SalesBrandRank

256Jiangnan Auto3521Guizhou Skylark36

320Chongqing Lifan34350Beiqi Foton33

2,219FAW322,620Beiqi Auto313,566Jinbei30

8,879Zhonghua22

4,399Zhongxing295,563Chang'an285,635Jiangling275,922DC266,795BMW Brilliance257,418Changhe247,445DFM-Liuzhou23

11,640Soueast2112,004Great Wall2012,337Jianghuai Auto19SalesBrandRank

Brand Sales Rank

Mar

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Brand Market Shares

1-7* Note: Brand sales are the total sales from all the brand’s respective joint ventures


15,98819,345

16,895

13,208

15,363

0

4,000

8,000

12,000

16,000

20,000

24,000

Charade Jetta Buick Excelle Elantra Accord

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.

Sales YTD 2006

Sales April 2006

Units

Pro

duct

Wat

ch

Best Selling Models

1-8

59,379

65,908

60,173

47,893

50,920

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Charade Elantra Buick Excelle Jetta Chery QQUnits


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.

Pro

duct

Wat

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Model Volume Movements

1-9

Others156,760Total92,6154,512F3BYD Auto10*4,672LacrosseSGM 9*5,465ReizTianjin Toyota8*6,666FocusChang'an Ford7*6,787CeratoDongfeng Yueda Kia6*6,824Santana3000SVW 56,945Freedom ShipGeely47,010Chery QiyunChery37,516PassatSVW 27,748TiidaDongfeng Ltd.1

Volume Growth YoYModelManufacturerRankTop 10 Volume Growers in April

Others-39,229Total-17,222-1,632SafeGreat Wall Motors10-1,726PajeroChangfeng Group 9-1,956SantanaSVW 8-1,957SailSGM 7-2,071ElantraBeijing Hyundai6-2,201AccentDongfeng Yueda Kia5-2,392FitGuangzhou Honda 4-2,473Buick RegalSGM 3-2,667LioncelSoueast2-2,932AltoChang'an Suzuki1

Volume Decline YoYModelManufacturerRankTop 10 Volume Decliners in April

123,589Net Growth-34,574Volume Decline156,760Volume Growth

* Note: Model released within the last 12 months


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 taken now, the first deliveries are expected in June.

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.

Toyota Camry

197,800 - 269,8002.0L – 2.4LMidsizeMay 23

Price (RMB)EngineSegmentLaunch Date

95,800 – 109,8001.6L – 2.0LSMPVMay 18

Price (RMB)EngineSegmentLaunch Date

Landwind Fengshang

Competitor Comparison

Mazda 6

195k – 228k RMB

Ford Mondeo

186k – 250k RMB

Pro

duct

Wat

ch

Monthly Watch of New Models

1-10

VW Caddy

130k – 167k RMB

Competitor Comparison

Mazda Premacy

138k - 165k RMB


-40%

-30%

-20%

-10%

0%1Q

, 03

3Q, 0

3

1Q, 0

4

3Q, 0

4

1Q, 0

5

3Q, 0

5

1Q, 0

6

Charade 7101

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%.

241,800225,800Accord 2.4AT Standard 2006Guangzhou Honda247,500 238,500Reiz 2.5V AT/MT StandardTianjin Toyota139,800130,800Tiida 1.6G MTDongfeng Ltd

Old Price (RMB)New Price (RMB)ModelManufacturer

Tiida

9%

Price Tracker

-40%

-30%

-20%

-10%

0%

Accord 2.4L

-40%

-30%

-20%

-10%

0%1Q

, 03

3Q, 0

3

1Q, 0

4

3Q, 0

4

1Q, 0

5

3Q, 0

5

1Q, 0

6

Bora 1.6L (std)

-40%

-30%

-20%

-10%

0%

Santana Basic -40%

-30%

-20%

-10%

0%

Mondeo 2.0

-40%

-30%

-20%

-10%

0%

Audi A4 1.8L

Pro

duct

Wat

ch

Price Watch

Reiz

10%

Accord

9%

% C

hang

e

% C

hang

e

1-11


FAW to target international midsize models

FAW unveiled at the Hangzhou Auto Show recently the Benteng, is newly designed midsize sedan. FAW claims that the new model, expect to hit the market around July, will compete with the likes of the Accord, Passat, Teanaand Royaum. Though largely based on the Mazda 6, the Chinese manufacturer states that the model has been completely redesigned and is now essentially a Chinese designed vehicle. It will sport 2.0 and 2.3 litre engines, and is expected to sell for between 200,000 and 250,000 RMB.

Chery to move sales HQ to Shanghai

Chery, China’s best selling domestic car brand, is to move its sales headquarters from Anhui to Shanghai. The move is expected to be a gradually one, starting June and ending before the end of the year. Part of their research and development operations may also move to Shanghai as well.

Indu

stry

New

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Market News

Proton and Chery to look into opportunities

Proton has announced that it has inked a feasibility study with Chery to look into supplying the Chinese models to both Malaysia and other South East Asian markets as well as supplying China with Proton models. The study is expected to take about three months.

Geely’s new plant

Geely is to build a new plant in Jinan, Shandong province. The start of construction is slated for the beginning of June. Initial capacity is expected to be at 100,000 units.

SAIC profits up 47% in Q1 2006

Shanghai Automotive Industry Corporation (SAIC) has announced that its first quarter net profit this year was up 47% over the same period last year. According to its report, the company’s business income amounted to 2 billion RMB (US$1.25 billion) during the period, of which 223 million RMB (US$27.9 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 (US$123 million) in 2004.

1-12

China’s Accord and Camry Buster?


BMW to increase local content

BMW Group has announced that it will more than triple the amount of components it sources from China for its JV with Brilliance Automotive Corp. BMW Brilliance Automotive said that they will increase the value of parts sourced domestically from 870 million RMB (US$109 million) in 2005 to 3 billion RMB (US$375 million) by 2007

Automation sector to diversify

International companies providing automation systems to the manufacturing sector have stated that they must diversify and begin offering more energy efficient systems to beat domestic players. Companies like ABB Group, Rockwell and Siemens Corp, who all have investments in China, say that though growth has been healthy to date, only with further research and development will they be able to maintain the momentum achieved over the last few years.

Policy News

Visteon opens air-con plant

The world’s second largest auto parts supplier, Visteon, recently opened a new US$65 million facility which will make air conditioning components. The facility, based in Dalian, in China’s northeasternLiaoning province, has a capacity to produce over one million air-con compressors a year and plans to also export the components to South Korea and other nations.

Bosch begins large scale investment

German auto parts giant Bosch recently announced plans to invest 160 million euros (US$203 million) in expanding its facilities in Changsha and Suzhou. Company executives stated that this was just the beginning of an investment plan which will see the company pour 620 million euros (US$787 million) into China over the next two years. In 2005, Bosch’s sales totaled 1.2 billion euros (US$1.53 billion) in China, a 15 per cent increase from 2004.

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.

Indu

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Supplier News

1-13


Indu

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Upcoming China Auto Industry Events

1-14

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

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

2006

Shenzhen Hi-Tech Fair Exhibition Centre, Shenzhen

The 10th Shenzhen International Automobile Exhibition (SHENZHEN MOTOR' 2006) Sept TBA, 2006

Shanghai Everbright Convention & Exhibition Center, ShanghaiAutomotive Testing Expo ChinaSept. 6-8, 2006

Suzhou High & New International Automobile Exhibition Center, Suzhou

2006 China Auto Part & Component Supplier Convention

Sept. 15-17, 2006

Xi'an Automobile Exposition Center, Shaanxi

2006 Western China International Automotive Industry Exposition

Sept. 21-30, 2006

The Tianjin Binhai International Exhibition & Convention CenterThe 2006 Tianjin International Automobile ShowSept./Oct. 29-5,

2006

Shanghai New International Expo CentreAutomechanika ShanghaiNov./Dec. 2006

Harbin International Convention & Exhibition Center

The 9th Harbin International Automobile Exhibition

Jul./Aug. 27-5, 2006

Dalian Xinghai International Exhibition Center

The 11th Dalian International Automotive Industry Exhibition

Aug. 24-28, 2006

FacilityEventDate

Automotive Resources Asia Ltd. (ARA) is a marketing strategy company specializing in Asia’s automotive markets. For more about ARA, visit www.auto-resources-asia.com.

ShanghaiRoom 2922, Shanghai Kerry Centre,1515 Nanjing Xi Road,JingAn District, Shanghai200040 ChinaTel: 8621 61037118Fax: 8621 61037070

BeijingSuite 916, Tower BFull Link Plaza BuildingNo. 18, Chaoyangmenwai AvenueBeijing 100020 ChinaTel. (86 10) 6588-6778Fax. (86 10) 6588-9756

Bangkok11 Fl. Q. House Asoke Bldg.66 Sukhumvit 21 RoadBangkok 10110ThailandTel: 662 264 2050Fax: 662 264 2051

Understand the Territory

For more information about the China Automotive Report, please contact Benjamin Asher by email at [email protected]

Copyright © 2006 Automotive Resources Asia Ltd.

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C hina A utomotive R eport Executive Summary