Chongqing Changan Automobile is in talks with partner Ford Motor to produce a mid-sized car in China using Ford technology but carrying a Changan brand, as they move to take their partnership to a new level, two sources said on Monday.

Changan, one of China's top state auto groups but which lags in its own brand sedans, has been making Focus, Mondeo, Fiesta and other Ford models in a three-way tie-up with the Detroit automaker and Mazda Motor.

The initiative, if it goes ahead, would mark a breakthrough in their partnership and pave the way for more, mutually beneficial deals in the years to come, sources said.

Ford CEO Alan Mulally met Changan Chairman Xu Liuping during his trip to China in March. They had in-depth talks on ways to bring their cooperation to the next level, one source with direct knowledge of the matter told Reuters.

One option both partners are seriously considering would see Changan making a mid-sized sedan based on a Ford platform in its own production base in Nanjing, close to Shanghai, said a second source who was briefed on the matter.

The sedan will be sold under Changan's name, but will be priced lower than the comparable Ford model to avoid direct competition. Ford will then get a sizeable share of the proceeds, both sources said.

It is unclear at this stage which of Ford's car models will be made at Changan's Nanjing production base, both sources said.

Changan's spokesman declined to comment, while Ford's China spokesman, Craig Von Essen, said it was market speculation.

GIVE AND TAKE

The partnership between General Motors GM.UL and SAIC Motor has long been touted as the most successful tie-up in the Chinese auto industry, allowing both to make a breakthrough in China and elsewhere.

Ford, a relatively latecomer to China, now the world's biggest auto market, is also looking at options to expand its partnership with Changan Auto beyond the terms of the current joint venture.

The Changan deal may not add much value to Ford's only brand in the short term, but it could be the first step toward a wider and deeper relationship like GM and SAIC, said Huang Zherui, an analyst with global industry consultancy CSM Worldwide.

Currently, Changan has been competing mostly with indigenous players in the lower-end passenger car segment, leaving the more lucrative medium-to-higher market segment to locally-built Buick, Accord, Camry and Passat models.

SAIC is virtually the only local automaker that has made some inroads in that segment with its Roewe and MG sedans.

FAW Group, a Volkswagen and Toyota Motor partner, has also been making mid-size Besturn, based on the Mazda 6 platform.

Access to Ford's technology could raise Changan's profile and put it on par with its domestic rivals, industry observers said.

China Ford Motor Company