| Faw-Ford United Aluminum Radiator Company Ltd ("Uarco") is a joint venture established in 1995 by Faw and Ford Motor Company. After the equity transfer in 2000, the current investers are Visteon International Holding Company and Fawer Automotive Parts Company.The major product of Uarco is automobile radiator. The company was set up for supplying FAW-VW and Faw Car Company; these two auto manufacturers are still the major customers of Uarco.Since establishment, the company's performance in various fields failed to reach originally set target. It kept losing money from 1997 to 2001. By the end of 2001, it had accumulated as much loss as RMB 37 million. It turned a little better in 2002 and 2003 due to sales increase. However, from 2004, facing the pressure of price reduction, Uarco realized that the era of high profit margin is over. In the following years, sales volume will continue to grow, but the profit forecast makes shareholders upset.Nowadays, the domestic enterprises are trying their best to strengthen cooperation with foreign companies with more and more JVs emerging in China, so it is necessary for us to review those completed projects, recheck project feasibility, analyze the course of construction and operation, and draw lessons from the past. This would be helpful for both future Sino-foreign cooperation and our company's project management.This appraisal makes a overall review over the project construction, investment and capital sourcing. The construction scale is very close to original design. Fixed assets investment is a little lower than planned due to some equipment import was replaced by domestic purchase. Technology transfer fee is only half the original amount for the reason of product design. Pre-operation expenses doubled due to delay of commencement of operation. Overall, the investment is RMB 20 million lower than budget. Faw's car production growth means a relatively stable market for Uarco, because Uarco is indirectly invested by Faw. The radiator core produced by Uarco is formed by aluminum flat tube, aluminum wave strip and aluminum side panel, using NOCOLOK aluminum drill soldering. The water container is molded by industrial plastic material. It is assembled by using new technique of turning and pressing aluminum flat. Uarco is the first manufacturer of brazed aluminum radiator in China. Up to now, its product structure and manufacturing technique are still comparatively advanced in home and abroad.The construction scale is close to the original design. However, the actual production capacity is far below estimate due to understating difficulties brought by product model diversification in prior feasibility study.In general management, Uarco introduced some managerial methods and received some training arranged by Ford in technology and management. The quality control system was successively awarded ISO 9001 by Tuev Rheinlan Anlagen-technik Gmbh of Germany and ISO 9001, QS-9000&VDA 6.1 by Perry Johnson Registrars Inc.The profitability is far below original plan due to lower production volume. As to the future forecast, although the sales quantity will grow, the performance would not become better because of sharp decline of selling price. The discounted net cash flow is below 0 when we calculate it with the discount rate used in the prior feasibility study, even if the income from ownership transfer taken into account.On the whole, the project was not completed in time. The actual production capability is below designed level, actual production volume is far below economic scale, profitability and debt coverage ratio is too low. The investor can't recover their investment. At last, we can draw a conclusion --- this project is a failure.The main cause of this failure is as follows:1, There is a mistake in original capacity design. In original design, some possible problem is under estimated, this led to big variance between the design and actual.2, The investors were too optimistic in volume forecast. The forecasted sales volume was too high, the volume d...
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