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November 11, 2009

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Home » Business » Auto

Chang'an to build mighty car group

THE state parent of China's Chang'an Automobile Group Co agreed yesterday to take over five vehicle units of the Aviation Industry Corp of China to form a new automotive giant.

The deal - the biggest merger between China's state-owned auto companies - is further evidence that the central government is moving ahead with plans to consolidate the industry and create several globally competitive car makers.

Chang'an parent China Ordnance Equipment Group Corp said it will transfer a stake in Chang'an Auto to AVIC in exchange for AVIC's ownership share of minivan maker Harbin Hafei Automobile Industry Group, Changhe Automobile, engine maker Dongan Power, Changhe Suzuki and Dongan Mitsubishi.

The assets transfer, signed yesterday in Beijing, will give AVIC a 23 percent stake in the new Chang'an Auto Group, and COEGC will hold the rest. Financial details were not revealed.

"The government was a decisive factor behind this merger," independent auto analyst Li Anding said.

"There won't be much difficulty in consolidating the products. Chang'an's link-up with its smaller rival is promising for the long term," Li said.

Beijing-based Chang'an Auto, the Chinese partner of Ford Motor Corp, Japan's Mazda Motor Corp and Suzuki Motor Corp, was the nation's fourth-largest auto group last year.

In addition to the joint-venture products, it also makes self-branded cars and minivans and has an annual capacity of 1.6 million units.

After the deal, new Chang'an Group will be capable of producing 2.2 million vehicles at 21 car factories nationwide, giving it the opportunity to challenge the nation's biggest car maker, Shanghai-based SAIC Motor Corp. SAIC is forecast to sell more than 2 million vehicles this year.

"Chang'an aims to boost sales to more than 2.6 million units by 2012 and to 5 million by 2020," said Xu Bin, general manager of COEGC.

"Our goal is also to introduce our self-branded vehicles to the higher-end market and become a top-class international auto group."

Industry analyst Jia Xinguang said he believes the tie-up will benefit all the parties as they have a lot in common.

"Minivans will be the focus of the restructuring," Jia said. "Chang'an could leverage the tie-up strength to quickly boost capacity and build a nationwide presence."

The move by Chang'an is part of a wider restructuring of China's auto industry.

China announced earlier this year that it wants to cut the number of its major auto groups to 10 or fewer from the existing 14 over the next three years through mergers and acquisitions.

The state aims to form two to three auto giants with annual production capacities of at least 2 million units and four to five companies with capacities above 1 million.


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