Running two highly profitable joint ventures with Toyota Motor Co. and Honda Motor Co., cash-rich Guangzhou Automobile Group Co. contracted to buy a stake in domestic SUV maker Changfeng Motor Co.. 

 

The deal was the second equity transaction between two state-owned automakers in two years. In late 2007, Shanghai Automotive Industry Corp. acquired Nanjing Automobile Group Corp.  

 

Under the agreement signed on May 21, Guangzhou Auto will pay 29 percent of Changfeng for 1.05 billion yuan ($154.0 billion), according to information released by both companies. The deal will make Guangzhou Auto Changfeng's largest shareholder.  

 

In addition, Guangzhou Auto pledged to invest some 10 billion yuan ($1.5 billion) in Changfeng to help the latter increase its annual capacity to 500,000 vehicles, up from some 100,000 units now.

 

Located in central China's Hunan province, Changfeng currently makes the Mitsubishi Pajero under a licensing agreement with Mitsubishi Motors Corp. as well as variations of the SUV sold under its own brand, Liebao. 

 

In 2008, Changfeng sold 26,816 vehicles, up 4.0% from 2007, according to its financial statement. Mitsubishi also owns 14.6 percent of Changfeng, which buys many parts from suppliers affiliated with Mitsubishi.

 

The equity transaction Guangzhou Auto has made with Changfeng will not affect the partnership between Changfeng and Mitsubishi, Guangzhou Auto president Zeng Qinghong told Chinese media after he signed the deal with Changfeng.

 

Based in the south China city of Guangzhou, Guangzhou Auto is also seeking to set up a joint venture production facility with Fiat S.p.A. The company also plans to launch a sedan under its own brand early next year.