China's Brilliance: Back from Disaster?

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By mid-2008, Luxembourg-based HSO aims to have three models on the market: the BS6, the BS4 compact sedan, and the BC3 coupe. By yearend, Sachs hopes to add a station wagon and a small "environment-friendly" model. An SUV is targeted for 2009.

American Dreams

That demanding push into Europe assumes, of course, that production versions of all Brilliance cars receive three stars when tested by ADAC and other European quality associations, Sachs says. But he and Brilliance are confident they will. To ensure a better quality rating, Brilliance hired top European engineering houses to lead the reengineering effort. "We have a famous German partner," says Ye, adding that the company signed a confidentiality agreement with the engineering house.

Brilliance also has begun doing U.S. quality and crash tests on its cars, and is aiming to launch exports to the U.S. within two years. "The regulations in the U.S. are more complicated than in Europe, because they differ from state to state," says Ye. "We want to be the first Chinese company to enter the European market. Our experience in Europe can help us enter the U.S. market."

Sachs already has signed up 33 dealers in Germany, aiming for 100 by yearend, and is forecasting sales of 15,000 cars in 2008, as long as the Brilliance models meet EU standards. HSO had hoped to sell 15,000 cars this year, but now expects sales of 1,500 to 2,000. At the Frankfurt Auto show, Ye, head of overseas sales for Brilliance, met with 200 potential European dealers. Now, he is setting up importers for Spain and Portugal. "Brilliance is the icebreaker for all the other Chinese manufacturers in Europe," says Sachs, who helped open the European market to Korean automakers in the early 1990s.

Knowledge is Power

The tale of Brilliance's determination to crack the European market, despite its quality blunder, indicates just how quickly other Chinese automakers may dare to do the same—especially those who have joint ventures with Western partners in China. Auto industry experts believe the Chinese will master quality and reliability in half the time it took the Korean automakers to go up the learning curve, thanks in part to the knowledge transfer from joint ventures. "Our cooperation with BMW gave us a lot of help improving quality," says Ye.

But that cooperation goes only so far. BMW is not involved in producing Brilliance's cars. When asked at the Frankfurt Auto Show about the tech transfer that is going on between them and Brilliance, BMW's chief financial officer, Stefan Krause, just said: "That's the price of selling cars in China today."

Another reason why the Chinese may overcome quality kinks faster than expected: A globalized supplier industry allows anyone to buy design, engineering, and technology from the best in the business. Brilliance's European-looking BS6 and BS4 were designed by leading Italian styling house Giugiaro—best known as designer to Ferrari—and its chassis development and optimization was done by Porsche engineering. Brilliance developed one engine on its own and builds another under a joint venture with Mitsubishi (MITT). Finally, its production line in Shenyang was designed by BMW technicians working at Brilliance.

Global Partners

Ye says Brilliance will continue working to boost its crash-test rating to four stars—and eventually five—the best performance. Roughly 10% of Brilliance's sales are international, with the Middle East and Russia as leading markets. Brilliance is currently scouting for a plant site in Russia and already has an assembly plant in Egypt.

HSO Motors Europe is currently signing up European distributors, including Belgian car supermarket operator Cardoen and France's Asie Auto, which already distributes Chinese Landwind SUVs through a 100-strong network of dealers. HSO will distribute cars in Germany. Brilliance wants 700 European dealers by the end of 2008. Brilliance may have stalled this year, but it has no plans to take its foot off the accelerator to win over European buyers.

And the next strategic target is the U.S. How close is that? In July, Brilliance announced that it would be partnering with Scottsdale (Ariz.)-based distributor China Motor to launch a $20,000 vehicle—provided it doesn't fail U.S. safety and emission tests.

Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau.