Fiat, Guangzhou Automotive Sign China JV

ROME (Dow Jones)–Guangzhou Automobile Group and Italy’s Fiat SpA (F.MI) have agreed to set up a joint venture to start making economy cars from May 2011, they said Monday, giving Fiat a much-needed manufacturing presence in China.

Fiat has struggled to find a joint venture partner in China.

The joint venture will initially make 140,000 cars a year, and could later be increased to up to 250,000, Fiat said in a statement. It will invest EUR400 million to build a new factory in Changsha, China.

The first model to be launched will be the C-segment Linea sedan. The first engines will be the Fire 1.4 liter 120 horsepower and 150 horsepower T-Jet engine.

The agreement “is very important as part of Fiat’s overall expansion,” Italy’s Industry Minister Claudio Scajola said Monday.

Fiat recently took a 20% stake in U.S. automaker Chrysler LLC.

Guangzhou Automotive Group’s Vice Chairman and President Zeng Qinghong said Monday Fiat’s technology in the economy car segment had made it an attractive partner, adding that the new joint venture won’t harm its existing operations with Japanese firms Honda Motor Co. Ltd. (7267.TO) and Toyota Motor Corp. (7203.TO).

At 1510 GMT, Fiat’s stock was down 2% at EUR6.92, in line with the broader market.

“The impact on Fiat’s numbers is minimal, but its still a first step in an extremely difficult market like China,” said Serge Escude, an analyst at Cassa Lombarda.

-By Paul Hannon, Dow Jones Newswires; +44 20 7842 9491;

(Liam Moloney, Paula Longo, Jennifer Clark and Victoria Ruan contributed to this story.)

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