SHANGHAI-- Ford Motor Co. and its Chinese partner will invest 6.6 billion yuan ($1.08 billion) to buy and upgrade an existing car factory from a struggling domestic car maker, in a deal highlighting the disparity between China's demand for foreign-brand cars and an oversupply of domestic ones.

Ford joins a string of foreign auto makers adding capacity in China this year, even as sales growth in the broader auto market stalls as the country's economic growth slows. Analysts say they are less worried about Western car makers, many of whom already face capacity constraints, adding that the fallout from additional capacity could be felt most acutely by Japanese and Chinese brands, who are already struggling to keep market share.

Last year, Germany's Volkswagen AG as well as Ford blamed a lack of capacity for flat sales in some months of 2014.

The joint venture, Changan Ford Automobile Co., will acquire the plant from Harbin Hafei Automobile Industry Group Co., a wholly owned subsidiary of China Changan Automobile Group, the parent of Ford's partner, Chongqing Changan Automobile.

A spokeswoman for Ford in China said under the deal, Ford and its Chinese partner would upgrade the facility for production of Changan-Ford passenger cars, which would begin in the second half of 2016.

A spokeswoman for Hafei declined to comment, saying only the deal closing was proceeding in an orderly manner.

Ford said the Hafei deal would increase its passenger-car capacity by 200,000 vehicles annually, but said it had no specific product plan to announce at this time.

Ford last month raised the total annual capacity of its Changan joint venture to 1.4 million vehicles with the opening of a $760 million factory in the eastern Chinese city of Hangzhou that will eventually produce a quarter of a million cars. The Harbin plant, Ford's seventh in the country, will push that total to 1.6 million vehicles, the Ford spokeswoman said.

While China's car sales are growing at a 10% annual clip, many domestic auto makers have reported their worst financial results in years.

Government data show that local-brand passenger vehicles accounted for 38% of China's domestic market in 2014, down from 46% in 2010. The slide was more conspicuous in the important sedan segment, with local brands' shares falling to 22% from 31% over the same period.

Hafei sold about 2,000 vehicles in 2014, down from about 16,000 in 2013 and about 45,000 in 2012, according to data from consultancy Automotive Foresight.

Some analysts say deals such as the Hafei plant acquisition result from government-led pressure on more successful car makers to take up some of the underused car plants dotted around the country, including the Hafei plant, which is located in the northeastern province of Heilongjiang.

Ford said the acquisition benefits all parties involved and is supported by Ford, Changan, Hafei and the local government.

Heilongjiang's GDP grew by 5.6% last year, well below the national average, and it ranks among the poorest of China's provinces.

Jochen Siebert, managing director of consulting firm JSC Automotive, said the Harbin deal came "right on time" for Ford because the company needs the extra capacity. Still, he said the move points to a worrisome trend for foreign car makers. "This smacks of the government deciding how to allocate capacity," he said. "This draws car makers into a place where they don't want to be."

"We're always looking for opportunities to grow for the long term in China," the spokeswoman for Ford said in response.

Lilian Lin contributed to this article.

Write to Colum Murphy at colum.murphy@wsj.com

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