First Automotive Works Corp (FAW), China's No 2 auto group by 2006 sales, yesterday denied a report that it would buy Chrysler Group, the floundering US arm of DaimlerChrysler.

The Oriental Morning Post in Shanghai yesterday said State-owned FAW and DaimlerChrysler are in talks to acquire Chrysler, quoting an unnamed source.

However, Gao Yuan, director of FAW's news center, said it had no plans to buy Chrysler.

"We don't have the huge amount of money needed to buy Chrysler," Gao told China Daily.

Spokesman for DaimlerChrysler China Ltd Trevor Hale declined to comment yesterday.

Earlier this month, DaimlerChrysler agreed to sell part or all of its stake in Chrysler, which lost $1.4 billion last year mainly due to a 7-percent sales plunge in the United States, its home market.

General Motors is reportedly negotiating with DaimlerChrysler to buy Chrysler. A slew of hedge funds and investment groups have also shown interest in Chrysler.

Chinese vehicle producers have launched overseas mergers in recent years following the government's call to go abroad.

In 2004, the Shanghai Automotive Industry Corp (SAIC) spent $500 million buying a 48.9 percent stake in South Korean carmaker Ssangyong Motors.

Nanjing Automobile Corp bought the MG brand, a plant in England and an engine unit from collapsed British carmaker MG Rover for 53 million pounds in 2005.

Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co Ltd, suggested Chinese automakers should be cautious about overseas mergers as there will be "many unexpected risks".

Sales of FAW, the partner of Volkswagen, Toyota and Mazda, climbed by 18.57 percent year-on-year to 1.17 million vehicles last year, according to figures from the China Association of Automobile Manufacturers.

The company, based in the northeastern city of Changchun, posted 3.5 billion yuan in 2006 pre-tax profit on its core-business turnover of 148.7 billion yuan.

A Beijing plant owned by DaimlerChrysler and a local partner is assembling Chrysler's sport utility vehicles and sedans.

Source: China Daily