November 10, 2009 / 5:24 AM / 10 years ago

UPDATE 2-Changan Auto claims China's No.3 spot with AVIC deal

* Changan Group to boost auto capacity to 2 mln units/year

* AVIC to get 23 pct stake in enlarged Changan Group

* Changan Group to take over Hafei Auto, Dongan Engine

* China’s auto sector consolidation speeds up (Adds analyst comment, Changan statement, details)

By Fang Yan and Jacqueline Wong

SHANGHAI, Nov 10 (Reuters) - The state parent of Chongqing Changan Automobile Co (000625.SZ) has agreed to take over major auto assets from aircraft maker Aviation Industry Corp of China (AVIC), heeding Beijing’s calls to speed up restructuring in the fragmented auto industry.

The deal unveiled on Tuesday marks the lastest major consolidation of the world’s biggest auto market and will boost Changan to No.3 from No.4 among China’s 100-plus car markers.

Changan Automobile Group, a Ford Motor (F.N) partner, will take over minivan maker Harbin Hafei Automobile Industry Group and the China ventures of Suzuki Motor Corp (7269.T) and Mitsubishi Motors Corp (7211.T) from AVIC, Changan said in a statement.

State-owned AVIC will get a 23 percent stake in the enlarged Changan Auto Group in exchange for the assets, which also include Harbin Dongan Auto Engine Co (600178.SS) and Jiangxi Changhe Automobile Co (600372.SS).

Shares in the listed companies involved in the asset transfer were suspended from trade before the announcement.

Chinese automakers are mostly regional players, controlled by local governments eager to build up their own auto industries and provide local jobs, often leading to wasteful investment in excess capacity.

Most of them are competing against each other at the lower end of the market and leaving the lucrative upper end to the manufacturing ventures of global players, such as General Motors [GM.UL] and Volkswagen AG (VOWG.DE).


But Changan Auto, which makes Focus and Mondeo sedans in a tie-up with Ford and Mazda Motor (7261.T), is among a growing number of Chinese automakers with global ambitions.

SAIC Motor (600104.SS), a GM and Volkswagen partner, hopes to export its self-made Roewe sedans, and Geely Automobile Holdings (0175.HK) has been selected as the preferred bidder for Ford’s Volvo car unit.

“Every company has its own way. Geely hopes to raise its profile by taking over Volvo and Changan wants to be more powerful at home for now,” said Boni Sa, an analyst with industry consultancy CSM Worldwide. “It’s too early to say which will turn out to be the dark horse.”

Based on sales in the first 10 months of the year, Changan Auto Group’s sales would rise by around 336,000 to 1.53 million vehicles, replacing Dongfeng Motor Group Co (0489.HK) as the No.3 player in China behind SAIC Motor and FAW Group.

Beijing wants to cut the number of major Chinese auto groups to 10 or fewer from 14 now, and wants two or three mega-producers with annual output of more than 2 million vehicles each. [ID:nSP406080]

Changan Auto Group, which aims to sell over 2.6 million vehicles by 2012 and 5 million units by 2020, will see its production capacity rise to 2 million units from the deal.

With a push from the central government, several second-tier automakers, such as Guangzhou Automobile and Beijing Automotive Industry Holding Corp, have been seeking merger targets this year, hoping to squeeze into a select few of national players.

Guangzhou Auto, a Toyota Motor (7203.T) and Honda Motor (7267.T) partner, agreed in May to take 29 percent of sport utility maker Hunan Changfeng Motor Co 600991.SS.

Beijing Auto is also seeking to expand its ties with Daimler AG (DAIGn.DE) by replacing Fujian Motor Industry Group as the German automaker’s local partner in a commercial vehicle venture in southeast China.[ID:nSHA42953] (Additonal reporting by Michael Wei in Beijing; Editing by Lincoln Feast)

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