Consolidation as Dongfeng deals for Fujian Motor

The planned investment company between Dongfeng and Fujian Motor will have a 50 percent stake in Soueast Motor. [Photos provided to China Daily]

In the biggest consolidation in the nation's fragmented auto industry since 2009, China's second-largest automaker Dongfeng Motor Corp agreed last week to become a shareholder in Fujian Motor Industry Group Co Ltd.

Dongfeng signed a framework agreement with the Fujian provincial government to acquire shares in the local automaker from its owner, the Fujian State-owned Assets Supervision and Administration Commission.

Dongfeng did not disclose in its official statement how many shares it agreed to acquire or the specific investment amount.

But sources with knowledge of the agreement told China Daily the company plans to take a 45 percent stake in Fujian Motor at the beginning and will increase it to a controlling stake "when conditions are ripe".

According to the agreement, Dongfeng and Fujian Motor also plan to set up a new investment company two-thirds owned by Dongfeng.

The investment company will then take half the shares of Soueast Motor.

Soueast is now a three-way venture among Fujian Motor, Japan's Mitsubishi and China Motor Corp from Taiwan. It makes vehicles under the nameplates of Soueast and Mitsubishi.

The new investment company will replace Fujian Motor with a 50 percent stake in Soueast.

The shareholdings of Mitsubishi and China Motor Corp will not be affected by the plan.

Established in 1992, Fujian Motor has multiple business units in addition to the Soueast.

They include the homegrown minivan maker NLM Motor, bus manufacturer Xiamen King Long Motor Group and truck maker Fujian New Forta Automobile Industry Co.

The company also operates a joint venture with Daimler that makes Mercedes-Benz vans.

Last year, Fujian Motor sold about 200,000 vehicles with revenues of just above 10 billion yuan, according to domestic media reports.

Due to a slow development in the past few years, Fujian Motor has been seeking an association with a stronger automaker since 2009.