Chery Automobile, the upstart Chinese car maker, said it intends to acquire a bus plant from First Automotive Works Corp (FAW), the nation's biggest vehicle manufacturer.

"We are just in initial merger talks and nothing specific can be released at present," Jin Yibo, an official from Chery, told China Daily.

Both Chery and FAW's bus plant are located in Wuhu, a city in East China's Anhui Province.

The plant, jointly controlled by FAW, Wuhu Automobile Industry Co, China Cinda Assets Management Co and China Great Wall Assets Management Co, has been struggling in recent years due to sluggish sales.

With a total investment of 560 million yuan (US$67.6 million), the plant now has an annual production capacity of 2,000 medium- and large-sized buses and 30,000 bus chassis.

The merger is seen as part of Chery's plan to expand aggressively over the coming years.

As one of the few Chinese car makers sticking to its own development and brands, the firm intends to almost triple its annual production capacity to 1 million vehicles by 2010.

"It is our future strategy to enter the commercial vehicle sector. We have started developing commercial vehicles," Jin said.

Chery aims to sell 136,000 cars this year, up from 80,000 last year, he said.

And 30,000 of those will be sold in overseas markets, he said.

"The loss-making bus plant in Wuhu has little value for FAW, but is a fairly good resource for Chery to penetrate the booming large-sized bus market in China," said Song Bingshen, an auto analyst with China Securities Co.

"With strong backing from the local government, Chery could get the bus plant at a cheap price. The most important thing is whether Chery will be able to revive the bus plant quickly after the merger," Song said.

Both output and sales of large-sized buses in China grew by more than 30 per cent last year from 2003, according to industry statistics.

Chery is seeking stock market listings to fund its expansion, Jin revealed without disclosing further details.

Chery now produces Fengyun, Qiyun and Oriental Sun sedans, QQ mini cars as well as the Tiggo sport utility vehicle which was launched last week.

Jin said the company's product line will expand into multi-purpose vehicles and high-end sedans in the coming years.

(China Daily March 28, 2005)