LAUNCHING MORE MODELS: The new solar powered Geely Eagle is exhibited at the Changchun Automobile Expo. Geely now has the capacity to launch four to five car and engine models every year

The success of the Chinese automobile market in the midst of an economic crisis that has most consumers hesitant to invest in new cars is raising eyebrows and increasing international investors' interest in exploring possible financial opportunities in China.

Goldman Sachs Capital Partners (GSCP), the private equity arm of Goldman Sachs Group Inc., recently invested $334 million in Geely Automobile Holdings Ltd., offering financial support for the automaker's future expansion plans. After the investment plan was released to the foreign media even greater attention was focused on the Chinese auto industry, as the financial move by GSCP will increase the ferocity of competition in the auto market.

The investment will be made through the subscription of convertible bonds and warrants. According to the Geely announcement on September 16, the company plans to issue convertible bonds of $245 million and warrants of $89 million.

A private carmaker located in east Zhejiang Province, Geely was listed in Hong Kong in May 2005. Investment from Goldman Sachs will be used to expand production, including an increased annual capacity of 150,000 cars in its workshop based in central Hunan Province.

Optimistic future

The demonstrated sustainable growth of Geely, as well as its prospective future, may have been tantamount in Goldman Sachs' decision to invest $245 million in it.

According to an interim financial report released by Geely on September 8, the company recorded a significant growth in net profit of 596 million yuan ($87.26 million) in the first half of 2009, up 145 percent from the same period of 2008. Basic earnings per share for the first half of 2009 were approximately 0.09 yuan ($0.01), up 93 percent year on year. The company expects to sell 250,000 units this year, representing an increase of 22 percent from 2008. Since the company accomplished 65 percent of its full-year sales target in the first seven months of this year, it believes that the target is within reach. It further anticipates that profits in the second half of this year will be better than in the first half.

A large chunk of the company's profits come from the domestic market. Thanks to the government policies, including a 2008 sales tax cut for smaller cars, the introduction of a fuel tax in January 2009, and the promulgation of the "stimulation package for the automobile industry" in early 2009, market demand for the company's safe, energy efficient and environmentally friendly vehicles kept increasing in the first half of this year.

Current figures show that Geely has sold more than 1.2 million units and established 109 stores, 680 sales agents and 569 post-sale service stations throughout the country. More than 430 suppliers offer spare parts to Geely.

The success Geely has experienced on the home front has not been matched on its sales abroad, as its exports have been severely affected by the global financial crisis. According to its interim report, exports accounted for only 5 percent of the company's total sales volume in the first half of 2009, while in 2007 and 2008, the rate was 12 percent and 19 percent, respectively.

Geely statistics showed that exports in the first seven months of 2009 dropped 69 percent from a year ago. At its highest distribution point in 2008, the company exported 4,000-5,000 units per month, but it only exported several hundred cars per month at the lowest point this year. Exports have rebounded to some 2,000 units presently, and the company expects better export figures in the second half of this year.