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Brilliance China troubled by changes in management

Brilliance China, a 14 year-old Chinese automaker, experienced a sudden change in management in its 11th year.


 


Before 2002, the names of Brilliance China, its chairman Yang Rong and the Zhonghua sedan were growing increasingly popular, as the company grew explosively through a series of dazzling business deals and investment masterminded by Yang and the introduction of China¡¯s first independently designed car, the Zhonghua.


 


But in 2002, Brilliance China¡¯s road to great success suddenly changed course as the assets of the company were taken over by the Liaoning provincial government and founder Yang Rong was forced to leave China in the face of an arrest warrant.


 


Today, Brilliance China is overshadowed by latecomers Chery and Geely, which are proudly holding the banner as pioneers of China¡¯s independent brands. Much to the regret of Yang Rong, sales in the first half of 2005 of the elegantly designed Zhonghua sedan were only one-fifth of those of economy cars made by Geely, the private carmaker that Yang at one time considered to be of only secondary importance.


 


The era of Yang Rong


 


The founder of the Brilliance China Automobile Group, Yang Rong teamed up with Shenyang Jinbei in 1991 to set up Brilliance Jinbei. Since then, he followed an innovative management strategy that combined automobile manufacturing, business ventures and infrastructure investment.


 


Yang¡¯s automobile projects included the Jinbei passenger van, Jinbei-GM SUV, Zhongxing pick-up, Sanjiang-Renault Kangoo and Zhonghua sedan.


 


Of all of these products, the Zhonghua sedan was Yang¡¯s favorite, being the first independently designed car in China. Since 1997, Yang invested more than ¥4 billion on the design of the Zhonghua through an Italian design house, import of advanced equipment from Germany and building of an assembly plant with annual output capacity of 100,000 units.


 


The first Zhonghua sedan rolled off the assembly line in December 2000 with a Mitsubishi engine produced at a local joint venture. Not happy with the engine, Yang turned to BMW for help and was referred to MG Rover.


 


Brilliance and Rover reached an agreement to establish a joint venture in Ningbo of Zhejiang Province to produce the Zhonghua brand cars using Rover technology. The solution was ideal for Yang, because it would significantly upgrade the quality of his brainchild, the Zhonghua, without stamping it with a foreign brand.


 


Ningbo offered preferential government policies, ample supply of local parts, plus the attractive investment opportunity of the proposed Shanghai-Ningbo trans-ocean Bridge project.


 


But not everyone shared his enthusiasm. To the Liaoning Provincial government and the city of Shenyang, Yang¡¯s cooperation with MG Rover in Ningbo and his planned investment in the Shanghai-Ningbo Bridge was nothing but moving revenue and capital into another province.


 


With support from the central government, the Liaoning Provincial authorities started to look into Yang Rong¡¯s assets and declared that those assets belonged to the government.


Yang Rong fled to the U.S. in June 2002, leaving Brilliance China in the hands of successors who had completely different agendas from his own.


 


Su Qiang and the “four guardians”


 


The four guardians, handpicked by Yang during his tenure at Brilliance China, Wu Xiao¡¯an, Su Qiang, Hong Xing and He Tao, continued to hold key positions in the company after Yang¡¯s departure. It was obvious that the Liaoning Provincial government did not want to jeopardize the company¡¯s operations by making a complete management change. The four guardians stayed on, believing that they would be fulfilling their duties as ¡°professional managers.¡± 


 


¡°Brilliance will become a significant automobile group in China in 5-10 years,¡± declared Su Qiang at the launch ceremony of the Zhonghua sedan in Beijing on August 20, 2002. ¡°We expect to sell 180,000 to 200,000 units of Zhonghua in five years and 400,000 to 450,000 units in 10 years.¡± 


 


In sharp contrast to Su¡¯s grandiose plan, the profit of Brilliance China decreased drastically from ¥900 million in 2001 to ¥48.6 million in 2004.


 


In taking over control of Brilliance China, the Brilliance Group Holding Co., Ltd. was established by order of the provincial government and Yang Baoshan, assistant to the governor, was appointed chairman. Thereafter, the assets formerly controlled by Yang Rong, which totaled 39.446 percent of the shares of Brilliance China, were transferred to the Liaoning government.


 


To keep the ¡°four guardians¡± in their management positions at Brilliance China, Brilliance Jinbei and BMW-Brilliance, Yang Baoshan promised them 80 to 90 million shares each in the new company, worth between 100 and 200 million Hong Kong dollars.


 


In the meantime, investment projects made by Yang Rong were shut down one by one. Joint venture plans with MG Rover were aborted and the Sanjiang-Renault project in Hubei Province ran aground, both losing millions of dollars. The Liaoning and Shenyang governments were concerned only with local automotive projects and investments.


Seeing that they were unable to control the destiny of Brilliance China, the four guardians sold their shares in Brilliance in 2003 and 2004 and three of them, including Su Qiang, resigned in late 2004.


 


Not long afterwards, the Liaoning Provincial government announced Yang Baoshan¡¯s resignation, Brilliance¡¯s sales continued to decline and the Zhonghua sedan operated at a loss.


 


The three paths for Lin Xiaogang


 


Only days after Su Qiang¡¯s resignation, Lin Xiaogang, former vice president of the Shenyang Aircraft Corp., took over the role of president and chairman of the Brilliance Group. Earlier this year, Brilliance Jinbei¡¯s vice president and long-term executive, Liu Zhigang, was appointed president of the company.


 


The question remains as to whether this new management team headed by Lin Xiaogang will be able to make a turn-around for Brilliance and its car assembly businesses. And there are probably three scenarios facing the Shenyang-based company.


 


The first is to rejuvenate under the new management. ¡°My first goal is to stop the decline in sales,¡± said Lin Xiaogang to the public after his new appointment. However, sales in the first half of 2005 of the Zhonghua sedan and the Jinbei Haice minivan continued to decline, down by 45 and 11 percent respectively over the same period in 2004.


 


The second scenario would be a merger into a large automobile group in China. Industry analysts believe that there is little chance for Brilliance to turn things around by itself. Merging into the country¡¯s largest automobile group, FAW, is one possibility as both automakers are located in the Northeastern area. But there is not much likelihood of this, considering the unhappy former relationship between the two parties as well as Liaoning¡¯s known aspiration to develop the provincial auto industry. Another possibility would be a merger with Shanghai-GM, which has successfully acquired a number of manufacturing companies in China, including the former Jinbei-GM in Shenyang.


 


The third scenario is the return of Yang Rong. ¡°If I had the opportunity to return to Brilliance,¡± Yang Rong said in a telephone interview, ¡°I think that would be a win-win situation.¡±


 


Rewritten by Alfred Tian based on the author¡¯s article published in Zhongguo Qiyejia (China Entrepreneur)

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