Chery Automobile, China's rising independent carmaker, is preparing for a foray into the commercial vehicles sector to speed up its expansion, according to sources familiar with the company.

 

The carmaker in Wuhu, a city in East China's Anhui Province, has formed a commercial vehicles unit based on a failed bus plant acquired from the nation's top vehicle producer First Automotive Works Corp (FAW) at the beginning of this year, sources said.

 

Chery plans to start production of its own-brand commercial vehicles in 2008, aiming for an annual output of 300,000 units by 2010, sources said.

 

It expects to reap 10 billion yuan (US$1.2 billion) in sales revenue from the commercial vehicles business annually in 2010, one-eighth of its overall turnover in the year.

 

According to Chery's website, it aims to boost overall sales to 1 million vehicles a year by the end of this decade from 189,000 units last year.

 

The company currently makes low-cost cars under its own badge.

 

It has also set up a commercial vehicles engineering institute to develop new products. Commercial vehicles include trucks and buses.

 

A Chery spokesman yesterday declined to confirm the commercial vehicles sector plan.

 

The bus plant, also located in Wuhu, was launched in 1993 by FAW and the local government with an investment of 470 million yuan (US$58.7 million). It has a manufacturing capacity of 2,000 buses and 30,000 chassis a year.

 

But the plant hit severe financial trouble in 2002 due to sluggish sales.

 

Zhao Shengli, an auto analyst with China Galaxy Securities Co Ltd, said it's a "natural move" for Chery to enter the commercial vehicles market as it needs a broader product spectrum to achieve its ambitious sales target.

 

"It therefore aspires to the commercial vehicles sector. China's commercial vehicles market will continue to grow in the coming years, but competition has been very fierce with lots of players," Zhao told China Daily.

 

He predicted demand for commercial vehicles in China would increase by 5 to 10 percent annually in the years to 2010.

 

According to industry statistics, demand in the first half of this year stood at 1.02 million units, up 7.71 percent from a year ago.

 

"As a major home-grown brand, Chery can gain strong backing from the government and banks," Zhao said.

 

The company appears to have a sound cash flow as many investment banks are persuading it to list on the stock market, he added.

 

Industry data showed that Chery's profits surged by three-fifths year-on-year to almost 112 million yuan (US$14 million) in the first half of this year on blistering sales growth.

 

The company sold 144,200 cars in the period, driving up its sales growth by 72 percent. Brisk sales made it the No 6 Chinese vehicle group after FAW, Shanghai Automotive Industry Corp, Dongfeng Motor Corp, Chang'an Motor Corp and Beijing Automotive Industry Corp.

 

While Chery is an independent company, its bigger competitors all assemble foreign-brand cars.

 

Chery expects to sell more than 300,000 vehicles this year.

 

Its current line-up contains micro cars, compact and mid-sized sedans, multi-purpose vehicles and compact sport-utility vehicles, which retail between 32,400 yuan (US$4,100) and 169,800 yuan (US$21,200).

 

The company is leading China's car exports.

 

From Janaury to June, it exported 13,548 cars, accounting for two-fifths of the nation's total car shipment overseas.

 

(China Daily August 25, 2006)