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In the present research, the prediction-error method is applied for the analysis of vehicle handling performance in conjunction of the dynamic simulation model parameter identification. In corporation with Multi-body system dynamics simulation in ADAMS and the theoretical analysis, the mathematical model is established for the vehicle system. By the Newton-Raphson procedure and the Least Square Method, the identification model can be solved iteratively. Then the mathematical model can be thereafter developed by means of the prediction-error method. It is shown from the transient responses of the vehicle system that the model structure is simplied.