UPDATE 1-China's Great Wall halt sales of new SUV over quality issue

Thu May 8, 2014 10:01am EDT

(Recasts, adds analyst comment, details)

SHANGHAI May 8 (Reuters) - Great Wall Motor Co, China's biggest maker of sport utility vehicles, said on Thursday it would halt delivery of its newly-launched Haval H8 due to a quality issue, dealing a second setback to its ambitions to compete in the premium market.

It is the second time in less than six months the Haval H8, which sells for more than $32,000, has been affected by technical and other problems.

Great Wall said on Thursday it would fix glitches in the Haval H8 after customers complained of knocking noises in the car's transmission system when driving at high speed.

Sales would resume only after the product reached "premium standards", the company said in a statement to the Hong Kong Stock Exchange.

"This demonstrates the company's weakness in developing high-end products and in technical management," Great Wall said. "Repeatedly delaying delivery of Haval H8 has hurt customers' feelings, and we feel very guilty about that."

Great Wall shares, which were suspended from trading on Thursday pending the announcement, will resume trading on Friday, the company said.

In January the carmaker was forced to delay the SUV's launch by three months because of style and quality issues. The following day its shares in Hong Kong slumped as much as 20 percent while its Shanghai-traded shares touched six-month lows.

Dealers started taking orders for the SUV last month.

Chinese companies including Great Wall, Geely Automobile Holdings Ltd and BYD Co Ltd face increasing competition from foreign rivals in the low end of China's auto market.

But local carmaker' efforts to compete in the premium end of the market are constrained by consumers' perception that indigenous brands are of lower quality.

Great Walls' latest setback would have an impact on its sales, but that's not necessarily a bad thing for the automaker in the long run, Namrita Chow, principal analyst at consultancy IHS Automotive, said.

Unlike some Chinese carmakers who are over-optimistic, Great Wall is "very, very cautious", Chow said.

"You want to protect your brand for the long term. You don't want to see recalls afterwards," she said.

Earlier on Thursday, Reuters reported that most H8 dealers had been told by Great Wall to stop taking new orders.

(Reporting by Samuel Shen and Kazunori Takada; Editing by Kenneth Maxwell and Susan Thomas)

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