ArvinMeritor will provide parts and components of power transmission and basic braking systems to Yutong for the production of Yutong buses and chassis. Under the agreement, in addition to continually providing high-end axle products to Yutong, ArvinMeritor will also offer differential carriers and brake calipers made in its production plant in Wuxi, China, for application in Yutong’s self-made axles.

The final product will be assembled at Yutong's plant in Zhenzhou, China. As part of this partnership, ArvinMeritor and Yutong will also sell and distribute standard aftermarket service kits for its products.

The project will commence at the end of 2009 and the investment is expected to exceed $50 million in the next five years. Meanwhile, both parties will also further strengthen the cooperation in a wider area.

ArvinMeritor expects the alliance to consolidate its position in the Asian markets and strengthen its existing partnership with Yutong. The company has been focusing on low cost countries across Asia and South America. It aims to achieve revenues of $1 billion in Asia in the next 5 years.

ArvinMeritor also plans to open new plants in leading cost-competitive countries, including India and Mexico. It plans to open a plant in Pune, India in the near term to support light vehicle customers. Recently, ArvinMeritor opened a new production facility in Monterrey, Mexico. The new plant will provide the infrastructure to support targeted growth areas in off-highway components and the CVS market. The new plant is expected to reduce costs and provide flexibility to meet higher demand anticipated in North America in 2009.

In South America, the company is growing by winning several significant business propositions in Venezuela.

We rate the shares a Hold with a six-month target price of $4.00.