Nanjing Automobile Group, a struggling local automaker in East China, is considering merging its two vehicle ventures after a domestic partner pulled out from one of them.

The group in Jiangsu Province plans to bring together a sport utility vehicle (SUV) venture in Nanjing and a compact car venture in Wuxi, a local boom city, said Zhong Dong, an official from the company.

The new entity will be based in Wuxi and named Nanqi (Wuxi) Soyat Automobile Co Ltd, Zhong said.

Bird, a phone producer in Zhejiang Province, pulled out of the compact car venture due to sluggish sales, he said.

While Amoi, an electronics company in Fujian Province which has a 50 per cent stake in the auto group's SUV venture in Nanjing, is expected to increase investment in the new entity to "fill in the gap left by Bird," he said.

Previously, Bird held 58 per cent of shares in the Wuxi venture with an investment of 100 million yuan (US$12 million). Nanjing Automobile Group had a 35 per cent stake with the rest controlled by the local government.

The venture, which has an annual manufacturing capacity of 30,000 to 50,000 units, started making the 1.5-litre Soyat, based on Ibiza of Seat- a Spanish unit of German auto giant Volkswagen - last March.

But only 3,000 Soyats were sold last year, Zhong said.

Amoi and Nanjing Automobiles formed the SUV venture last year with a registered capital of 350 million yuan (US$42 million).

The venture, which has a production capacity of 5,000 units annually, produces Junda compact SUVs. Sales of this model stood at only 800 last year.

"We are also pursuing large economies of scale to consolidate the two ventures because both of them are small potatoes (when compared with foreign auto makers' ventures in China)," Zhong said.

Bird's break from the group is seen as natural by analysts after shrinking profits in the automobile industry.

"Bird is a beginner in the industry and its withdrawal is nothing strange when considering the joint venture's lacklustre sales and the overall deceleration of the car market in China," said Song Bingshen from China Securities Co Ltd.

The profit margins of automakers in China were squeezed to less than 8 per cent last year from over 10 per cent in 2003 due to price wars in the domestic car market, according to Song.

Total sales of China-made automobiles rose by 15.5 per cent to 5.07 million units last year over 2003.

But this growth rate was down from 34 per cent in 2003. The growth in passenger car sales plunged to 15.2 per cent from 75 per cent in 2003.

The group, owned by the Jiangsu provincial government, posted almost zero growth to 100,000 vehicles last year from 2003, mainly dragged by its car joint venture with Italy's Fiat Auto, Zhong said.

The Fiat venture, making Siena and Palio compact cars, sold less than 26,000 units last year, down from 36,000 in 2003.

Nanjing Automobiles lags far behind Chinese auto heavyweights, such as First Automotive Works Corp, Shanghai Automotive Industry Corp and Dongfeng Motor Corp, all of which sold more than 500,000 vehicles last year.

The group aims to bring its annual sales up to 300,000 by 2006.

Source: China Daily