First Chinese car company merger

THE first car industry merger in China after the announcement of the government’s consolidation policy has resulted in Guangzhou Automobile Group taking a 29 per cent stake in Changfeng Motor for $US245 million ($A312 million).

Guangzhou is China’s sixth largest car-maker and a partner of both Toyota and Honda, while Changfeng is the country’s seventh largest builder of SUVs, thanks to its close links with Mitsubishi Motors.

The deal neatly corrals three of Japan’s biggest producers into the one extended group, although it is not clear if this was part of the Chinese government’s strategy.

Changfeng general manager Chen Zhengchu said it was likely Guangzhou would increase its Changfeng stake. Mitsubishi’s stake in Changfeng will slip from 20 per cent to 14.6 per cent.

The government’s consolidation policy aims to reduce the nation’s 14 largest auto-makers, which account for 90 per cent of production, to 10 by 2011.

Guangzhou Auto was included in a government list of four smaller car-makers encouraged to buy rivals within defined regions as part of the plan.

The country’s four biggest auto-makers, including Shanghai Automotive Industry Corp (Group) and China FAW Group Corp, got support for deals nationwide.

Changfeng’s SUV range fits well with Guangzhou’s model line up, which includes Honda’s Fit/City/Jazz small car group plus Accord, and Toyota’s Yaris and Camry. It is about to start making Fiats in China and is planning to release its own-brand models in 2010.

Guangzhou also benefits from its Honda ties, being one of China’s biggest motorcycle producers.

The company will invest 10 billion yuan ($A1.87 billion) with Changfeng in Hunan province over the next five years. The investment will expand Changfeng’s capacity to 500,000 units a year. Changfeng sold little more than 25,000 vehicles last year.

Changfeng lagged the market last year, lifting sales 4.4 per cent to 26,886 vehicles, trailing a 6.7 per cent increase for the overall market.

The company builds Mitsubishi Pajeros and own-brand Liebao SUVs in Changsha city, southern China. It sells most of its vehicles to the police, military and other government agencies.

It is listed on the Shanghai sharemarket and has a market value of 5.8 billion yuan ($A1.08 billion), according to Bloomberg data. Its share price has almost tripled this year, reaching 11.09 yuan on May 18. The shares have been suspended since then, pending an announcement.

Guangzhou Auto, which builds Toyota and Honda cars in the southern city of Guangzhou, boosted sales 2.4 percent last year to 525,979 vehicles. It also made around 900,000 motorcycles.