Dongfeng-Yulon venture plans to raise output five-fold

Dongfeng Motor Corp (東風汽車), China's third-biggest automaker, will increase capacity of its venture with Taiwan's Yulon Motor Co (裕隆汽車) fivefold by 2006 to meet growing car demand in China.

Guangzhou Aeolus Automobile Co (風神汽車) plans to raise capacity to 120,000 cars in two years and to 240,000 by 2006, from 50,000 this year, said Tsay Wen-rong, vice president of the venture, in an interview. Part of the increase may result from a new agreement now being negotiated by Dongfeng and Nissan Motor Co, which supplies technology to the venture, Tsay said.

Competition is heating up in China as local and overseas automakers step up efforts to grab more of the growing auto demand, with Toyota Motor Corp announcing a production accord last week. China's car sales rose 44 percent in the first seven months of the year, and are heading for 950,000 units for the full year, according to consultants Automotive Resources Asia Ltd.

Guangzhou Aeolus, 60 percent-owned by Dongfeng and 40 percent by Yulon, builds a version of the Bluebird sedan with technology from Nissan, Japan's No. 3 automaker.

Nissan is in talks with Dongfeng about setting up a separate venture that may include making cars, trucks and sport-utility vehicles, and conduct design work in China.

"I think a deal [with Nissan] will be struck before the 16th party congress" to be held in November, Tsay said, referring to the gathering of China's Communist Party rulers every five years. The new Nissan venture will probably make Cefiros and Sentra cars, he said.

"We're in advanced stages of talks," Nissan spokesman Gerry Spahn said. "The negotiations are proceeding but we don't have a final agreement yet."

Nissan owns 25 percent of Yulon and has a technology partnership with the Guangzhou Aeolus venture, which now makes cars based on Nissan's Bluebird at its Huadu plant, north of Guangzhou.

Guangzhou Aeolus has sold 22,000 new Bluebird midsize sedans since the model went on sale on July 10. Guangzhou Aeolus has the license to assemble the new model, which is designed by Yulon. The venture is likely to easily meet its full-year sales target of 35,000 Bluebirds, Tsay said. The Bluebird sales target for next year is 45,000 units.

Nissan sold 42,000 vehicles in China last year, including Cefiro and Sunny cars imported from Japan and Bluebirds assembled in China.

Prices for domestic cars are likely to come "under pressure" in the second half of the year as lower import taxes make imported cars more attractive, Tsay said.

Shares of Dongfeng Automobile Co, the listed arm of Dongfeng Motor, rose 0.2 percent to close at 12.64 yuan in Shanghai.

Nissan shares fell 1.1 percent to close at ?827 in Tokyo. Yulon shares ended the day unchanged at NT$25.10.