Why Fiat must race to launch Jeep output in China

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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SHANGHAI -- Fiat-Chrysler CEO Sergio Marchionne told journalists recently that the company might seek a new Chinese partner to help produce Jeeps in China.

That's bad news for Fiat and its Chinese partner, Guangzhou Automobile Group Co.

Local production of Jeeps is vital to the success of their joint venture in China. They should not delay it.

In 2010, Fiat and Guangzhou Auto established a 50-50 joint venture in Changsha in central China's Hunan province. But sales of GAC Fiat Automobile Co., which only sells Fiat-brand models, are still small.

GAC Fiat can produce 140,000 vehicles a year, but it only uses 10 percent of its production capacity.

It has been no easy task promoting the Fiat brand in a short period and in a marketplace crowded with excess automakers and nameplates. By contrast, Jeep enjoys high brand recognition in China.

Jeep has a famed history in China as the first western auto brand produced here. In 1983, American Motors formed a joint venture with Beijing Automotive Industry Holding Corp. to build the Jeep Cherokee.

Production stopped after a few years, but Beijing Auto was allowed to build its own SUV model on the old Cherokee platform. The Chinese automaker called its own SUV brand Jipu in Chinese, which is pronounced almost the same as Jeep. That has helped Chinese consumers remember the Jeep brand.

In the 1980s and the early 1990s, a time when few Chinese families could afford private cars, the Jeep Cherokee and BAIC's Jipu SUV were typically used by government officials and the Chinese military. As a result, Chinese people view Jeep as a premium brand.

Chinese consumers also like the Jeep brand for its rugged SUVs. They like the feeling of sitting high and having a wide view while driving an SUV. In the past several years, annual SUV sales in China have maintained growth of more than 20 percent.

All of this explains why the Jeep brand sold some 46,000 vehicles in China last year -- far more than the Fiat brand produced.

Still, it's hard for Jeep to boost volumes here because imports are subject to a hefty 25 percent tariff.

To make better use of its Chinese assembly plant, the only feasible option for Fiat and Chrysler is to let it produce Jeeps.

Chrysler management has also reached this conclusion. At the Shanghai auto show in April, Jeep CEO Mike Manley told reporters that he might produce the redesigned Cherokee in China.

But we don't know why Marchionne said he might find a new Chinese partner. Some Chinese media speculated that it's because Guangzhou Auto wants to build Jeeps in Guangzhou where it is headquartered, an idea that Marchionne opposes.

To expedite the production of Jeeps in China, Fiat should stick with its existing partner. After parting with Nanjing Auto, Fiat took several years to line up Guangzhou Auto as a partner. Nobody knows how long it would take to find another Chinese partner.

Moreover, Guangzhou Auto badly needs a successful partnership with Fiat because its joint ventures with Toyota and Honda were hurt badly by tensions between China and Japan last year.

For the good of the Jeep brand, it would be wise for Fiat and Guangzhou Auto to reconcile their differences and restart preparations for Jeep production in China.

You can reach Yang Jian at yangjian@autonewschina.com.

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