Guangzhou Automobile Group Co has been in talks with the Hunan Changfeng Motor Co on a possible tie-up, according to an insider.

"We have been in contact over the past few months," said an unnamed Guangzhou official. "Both companies have proposals but we haven't gone through all the details."

The deal, if successful, will be the latest merger and acquisition in the world's second-largest auto market after the Chinese government called on industry-wide consolidations to heal the fragmented industry and help Chinese car makers grow and become more competitive.

Yesterday, a report in China Business News said Guangzhou Auto was planning to take a controlling stake in the pickup and sports-utility vehicle maker Changfeng through its Shanghai-listed unit.

The deal is expected to be sealed in the fourth quarter of this year, the Shanghai-based newspaper said.

It also said that Guangzhou Auto was in competition with Beijing Automotive Industry Holdings, which is also interested in being involved in the restructure of Changfeng.

However, an official from Changfeng Motors denied the report.

Guangzhou Auto is the nation's sixth-biggest auto maker and the Chinese partner of Toyota and Honda.

The move could help it form a third partnership with Japanese partner Mitsubishi, which currently owns 16.07 percent of Changfeng.

Analysts said the cooperation would benefit Guangzhou Auto, adding Changfeng's production and engineering strength in SUV and pickups.

Guangzhou Auto sold more than 500,000 vehicles last year with sales revenue of 108.4 billion yuan (US$15.8 billion). Changfeng fell 8.84 percent to close at 5.36 yuan.

(Shanghai Daily August 12, 2008)