How Jeep can make a comeback in China
Michael Dunne, president of Dunne & Co., wrote “American Wheels, Chinese Roads: The Story of General Motors in China.”
The Chinese SUV market has recorded explosive growth, with nearly 2 million units sold in 2011. To put that in perspective, China's SUV market alone is larger than total annual sales in Italy or Korea.
But Chrysler's Jeep brand delivered only 22,294 vehicles last year, relegating the proud brand to a status of a niche player in China. That sales count looks even smaller when you consider that Jeep sold more cars 20 years ago through its former joint venture, Beijing Jeep, than it sells today.
Standing between Jeep and a comeback in China are three formidable obstacles.
First, Jeep must secure a license to produce vehicles in China. Imports are subjected to a 25 percent tariff. And when you add a 17 percent value-added tax plus punitive new taxes on vehicles imported from America, the price of a Jeep Grand Cherokee can top $80,000.
Talks are under way with Fiat's partner, Guangzhou Automobile Group, to produce Jeeps in China. That would drop Jeep prices considerably, but Beijing's recent decision to remove incentives for foreign investment in the auto sector will surely slow progress and toughen the terms.
Jeep's outsider status is all the more ironic because Chrysler was the first foreign automaker to get a license for local production in China in 1983.
Once local production is arranged, the second challenge is for Jeep to make its Patriot and Compass models as appealing as the new Grand Cherokee. That is not the case today because Chrysler has never invested the resources to make smaller Jeeps irresistibly great.
Smaller SUVs such as the Honda CR-V and Volkswagen Tiguan are Chinese consumer favorites, the market's sweet spot. Jeep must meet or exceed those offerings to get in the game.
Jeep's third key hurdle may be its most challenging: aftersales parts and service. Chinese consumers, a demanding lot, expect high levels of convenience, quality and service.
Mike Manley, head of Fiat-Chrysler's Asian operations, said in January that Jeep intends to more than double its Chinese network of 50 dealerships. That would be a strong step in the right direction, although Jeep would remain a niche brand. By comparison, competitors such as General Motors, VW and Hyundai have more than 1,000 dealerships apiece in China.
Working in Jeep's favor is the illustrious Jeep brand name. Chinese consumers practically worship prestigious brand names, and Jeep still carries a certain swagger in the People's Republic.