SHANGHAI - Brilliance Auto, BMW's partner in China, has halted its car exports to Europe after its in-house designed BS4 and BS6 sedans met with a cool reception, highlighting the quality issues facing Chinese automakers eager to tap mature markets.

Brilliance was the only Chinese automaker that had managed to squeeze into the highly competitive European market, dominated by Volkswagen AG, PSA Peugeot Citroen and Fiat, with a bulky order four years ago.

But sales struggled after poor crash test results and negative publicity, two company executives told Reuters.

Its BS6 mid-sized sedan achieved a rating of just one star out of five in a crash test by German agency ADAC, while the slightly smaller BS4 failed the test completely.

We have stopped exports to Europe. For now, we have no timetable for resuming the business, said one of the executives with direct knowledge of the matter, blaming the poor reception for the sedans in part on the difficulty of keeping up with changing European regulations. The executives declined to be identified due to the sensitive nature of the matter.

Brilliance's setback in the European market rings alarm bells for ambitious Chinese automakers gearing up to enter the global arena, and highlights the benefits of buying up Western brands and technologies as a short-cut to success abroad.

Zhejiang Geely Holding Group, which makes small, inexpensive vehicles, signed a definitive agreement last month to buy Ford Motor's premium Volvo brand for $1.8 billion.

Beijing Automotive Industry Holding Co has also acquired some Saab technologies which it is incorporating in its soon-to-be launched Beijing brand sedans.

Brilliance, parent of Brilliance China Automotive Holdings, has so far refrained from making any major overseas acquisitions. But Chairman Qi Yumin told reporters last week he would not rule out taking over some Western design houses.

NOT GIVING UP

In 2006, Brilliance secured a deal to ship 158,000 sedans to Europe over a five-year period, the largest auto order ever from the developed world for a Chinese auto maker.

The total sales tally for the two models, however, reached only a few thousand.

Company executives told Reuters they had not given up on the European market and hoped to resume sales there again in the future with products that could meet new EU emissions standards.

The BS4 and BS6 were made with Euro 4 specifications in mind. When we resume exports we will come up with cars and meet the Euro 5 standards, said one executive.

Chinese automakers, from state auto group SAIC Motor Corp to Warren Buffett-backed BYD, are striving to raise their domestic profile to compete with foreign rivals such as Toyota Motor and Honda Motor.

But rather than rushing into unfamiliar markets when economic uncertainties and rising protectionism have raised the bar for new entrants, Chinese automakers should focus on their booming home turf, several industry executives and observers said.

At a time like this, the best strategy for a Chinese national brand is to step up its presence in China while maintaining a foothold overseas, said Huang Zherui, an analyst with CSM Worldwide, a global industry consultancy.

Brilliance is China's ninth-largest auto maker with a 2.6 percent market share as of the end of last year, compared with domestic leader SAIC's 19.8 percent, according to official data.

It sold 348,300 vehicles in 2009, up 22 percent from a year earlier, lagging a 46 percent gain in the overall market, now the world's largest. (Editing by Lincoln Feast)

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