Geely, the parent firm of Hong Kong-listed Geely Automobile Holdings Co, says it will make massive restructuring measures in its sales, service and purchasing networks, instead of price cuts, to deal with pressures from the cooling domestic car market.

The privately-owned carmaker based in East China's Zhejiang Province has merged its two sales branches - Geely Automobile Sales Co and Maple Automobile Sales Co - into one entity as the first step of the reshuffle, said Xu Gang, president of Geely.

But Xu denied recent domestic reports that the merger of the two branches will cut sales employees number by as much as 30 per cent.

The two branches are selling Geely Haoqing, Merrie and Ulion, produced in the carmaker's base in Ningbo in Zhejiang; and Maple produced in Shanghai.

Geely's sales firm for the Meirenbao - the first sports car made in China - will also be combined during the second half of this year, he said.

However, the carmaker will keep its affiliate responsible for car exports -Shanghai Geely Metop International Trade Co - intact, he said.

Geely will streamline more than 500 after-sales service stations for these models across China this year, he said.

The carmaker also plans to cut the number of its suppliers from more than 600 down to 300 to 400 this year, he said.

"These measures follow the development of the car market and we expect them to help us significantly cut costs and improve efficiency," Xu told China Daily.

"We face great challenges from the temporarily sluggish car market as well as other carmakers in China, but we could not simply rely on price cuts to enhance competitiveness of our products."

In May, sales of China-made passenger cars tumbled by 19.27 per cent from April, the second consecutive decline over the past five months.

Analysts predict car sales in June will further decrease from May, although no figures have been revealed.

"Geely has made a wise decision because profit margins of low-cost carmakers like it in China are very thin and they have little room to cut prices, despite growing pressure from price cuts by higher-end producers," said Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co.

"Whether it will further cut prices will depend to a large extent on what Li Shufu (Geely's chairman) seeks, market share or profit."

A lot of carmakers, such as joint ventures of General Motors, Volkswagen and PSA Peugeot Citroen in China, cut prices of their products over the past two months to boost sales.

Prices of Haoqing, Merrie, Ulion and Maple range from 33,000 yuan (US$4,000) to almost 80,000 yuan (US$9,660). The Meirenbao retails 129,900 yuan (US$15,700).

Xu estimated that Geely's sales will reach 55,000 cars during the first half of this year, compared with 80,000 units for all of last year.

"We will speed up efforts in research and development to introduce more new models to boost sales," Xu said.

Geely plans to add an investment of nearly 100 million yuan (US$12.1 million) to expand its research and development institute during the second half of this year, he said.

The company will produce a 1.5-litre sedan, designed by its partner Daewoo International Kaisha Corp of South Korea, in the next two months.

Geely will also launch new models engineered by Italian Car Projects Group and Germany's Luc Co next year or later.

(China Daily July 1, 2004)