A car model made by Changfeng Motors on display at an automobile show in Shanghai in April.[Xinhua]

Guangzhou Automobile Industry Group, the most profitable Chinese auto major, will take a 29 percent stake in SUV maker Hunan Changfeng Motor Co, as the regional automaker seeks to expand nationally.

The deal, if it goes through, would be the first major consolidation effort after the government issued an industry plan earlier this year, which aimed to dramatically cut the number of the country's more than 100 automakers.

Guangzhou Auto, Japanese carmakers Toyota Motor and Honda Motor's China partner, will buy the 29 percent stake from Changfeng's parent for nearly 1.2 billion yuan, making it the largest shareholder of the Shanghai-listed SUV maker, China Securities Journal reported.

The deal would also bring to an end the long standing speculation about who - Guangzhou Auto or Beijing Automotive Industry Holding Co, German carmaker Daimler's China partner - would be the final stakeholder in Changfeng, a small SUV maker in the inland province of Hunan.

Changfeng, whose shares were suspended from trading since Tuesday pending an announcement about "major changes" in its parent's asset structure, has seen its share price more than tripled since the beginning of this year.

"The deal makes business sense as it will complement Guangzhou Auto's product mix, which mainly covers medium- and high-end sedans," Jia Xingguang, an independent auto analyst, said.

"Changfeng's SUV lineup and its production capacity will be a big boost to Guangzhou Auto's ambition of becoming a leading national champion," Jia said.

Changfeng, which is 14.59 percent owned by Japan's Mitsubishi Motors Corp, has the capacity to produce 100,000 units a year.

Guangzhou Auto, which makes Toyota Camry and Honda Accord sedans, realized 2.9 billion in net profit last year, becoming the most profitable Chinese automaker.

The combined net profits of its two ventures with Toyota and Honda reached 6.1 billion yuan last year, on sales of 76.8 billion.

Changfeng sold only 26,816 vehicles in 2008, up a slight 4 percent from a year earlier, while its net profit plunged 23 percent from a year earlier to 141 million yuan, according to its annual reports.

The government said earlier this year in an auto industry stimulus plan that it wanted to cut the number of major Chinese auto groups to 10 or fewer from 14, and wants two or three mega-producers with annual output of more than 2 million vehicles each.

The plan encouraged Dongfeng Motor Group, FAW Group, SAIC Motor and Chang'an Group to take the lead in national industry consolidation and said it would support Beijing Auto, Guangzhou Auto and another two automakers to embark on regional industrial restructuring.

(China Daily May 21, 2009)