China's Dongfeng Motor to buy 40 pct of Fujian Auto -report

BEIJING Tue May 14, 2013 11:42pm EDT

BEIJING May 15 (Reuters) - The parent of Dongfeng Motor Group Co, China's second-largest automaker, will take an over-40 percent stake in Fujian Motor Industry Group, a local newspaper said on Wednesday, the latest consolidation in the country's fragmented auto market.

A deal, expected to be signed on Thursday, will allow Dongfeng to acquire Fujian Motor's passenger car business, China Business News said, citing an unnamed source at Dongfeng.

Fujian Auto's bus business and its three-way van manufacturing venture with Daimler AG and China Motor Co will not be affected, it said.

Officials at Dongfeng, which operates car ventures with Nissan Motor Co, Honda Motor Co and PSA Peugeot-Citroen, and Fujian Auto could not be reached for comment.

Fujian Auto, which is 25 percent held by Taiwan's China Motor, is a tiny player with annual capacity of 150,000 vehicles, according its website.

However, it has been an acquisition target of several Chinese automakers, including BAIC Group, eager to establish a presence in southeastern China, where the firm is based.

For years, the central government has been pushing for consolidation in the country's auto industry. However, it has been met by little success so far due to strong opposition by local governments which are eager to boost their local economy.

There are still over 70 registered automakers in the country, according to the China Association of Automobile Manufacturers.

Consolidation is seen becoming more important as the market has now settled for single-digit growth after years of breakneck expansion.

Changan Automobile Group took over microvan maker Harbin Hafei Automobile Industry Group in 2009 and Guangzhou Auto took control of small pickup truck maker Gonow and Changfeng Automobile, which has a 50-50 manufacturing and sales joint venture with Japan's Mitsubishi Motors Corp in Hunan province in central China.

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