China car maker plans buys, moves up market

(Adds details, executive's comments)

By Alison Leung

HONG KONG, July 13 (Reuters) - Geely Automobile Holdings Ltd. (0175.HK) plans to take over four car plants worth nearly US$500 million and set up another, as the ambitious Chinese firm expands, streamlines its structure and revamps its product slate.

Geely wants to shed its image as a maker of cheap cars by investing heavily in research. The firm hired former Chrysler executive Frank Zhao last year to head up a research effort it hopes would propel its nascent drive to sell cars abroad.

Geely, a private firm founded by entrepreneur Li Shufu that sells some of the country's cheapest automobiles, has 15 new models in the pipeline, executive director Lawrence Ang said on Friday.

And the firm -- which is in discussions to set up assembly plants across the Americas, Europe and Africa -- is working on an engine that would help it meet the latest European emissions standards.

"We started from the production of cheap and simple small cars and now we want to enter a phase of technological leadership and good quality," Li told reporters.

"Our development strategy is now in a transitional phase," he added.

For now, the firm wants to concentrate on simplifying a corporate structure with tendrils in a number of factories controlled by its unlisted parent of the same name.

Geely intends to increase its stake, to 90 percent, in four existing plants that had a combined net asset value of HK$3.65 billion (US$467 million) as of the end of 2006. Its parent would own the remainder.

Executives said the company would eventually own 100 percent of those factories, but with no clear timeframe in mind.

Taking over the factories would allow the Chinese firm to consolidate profits at those plants into its bottom line.

And by the end of the year, Geely hopes to own 90 percent of another plant its parent is building in central China.

The firm will sell new shares to its parent to fund all the purchases, executives said. Details would be unveiled later.

ESCAPE FROM HOME

Geely, which with local rivals Chery Automobile Co. and Dongfeng (0489.HK) is expanding in the world's second-largest vehicle market while hoping to eventually tap markets abroad, now owns 46.8 percent of the four existing factories.

The firm, which sells some of the country's cheapest cars under the Geely and Maple brands, plans to double capacity next year to some 600,000 vehicles annually. It hopes to be able to crank out a million cars a year by 2010, and 2 million by 2015 -- of which two-thirds would be exported.

Geely sells cars at below 30,000 yuan (US$3,960) each -- around a third of the price of a comparable General Motors GM.N sedan in China.

But like other Chinese car makers, Geely is trying to reduce its reliance on a cut-throat, intensely competitive home market.

That rivalry may be taking its toll.

Geely hopes to sell 240,000 cars this year, more than a third more than last year's 175,635 units. But in the first six months of the year, it sold just 98,000 cars -- 41 percent of the full-year target. Executives argued on Friday that sales often quicken in the second half.

The firm's shares, which have been suspended since Wednesday afternoon pending Friday's announcement, have climbed 46 percent in the past 12 months.

($1=HK$7.816)

((Writing by Edwin Chan; Editing by Tony Munroe; hongkong.newsroom@news.reuters.com; Reuters Messaging: eddie.chan.reuters.com@reuters.net; +852 2843 6345)) Keywords: GEELY ACQUISITION/

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