Oct. 29 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne is turning to Chrysler Group LLC’s Jeep brand in a bid to rescue a stalled entry into China’s car market.
In its third attempt in 15 years to gain a foothold in the country, Fiat is finalizing a deal with local partner Guangzhou Automobile Group Co. to make the Jeep Cherokee sport-utility vehicle in China, three people familiar with the matter said. The SUV could hit showrooms in 2015, said one of the people, who asked not to be identified because the talks are private.
The Italian carmaker is considering assembling the vehicle at its sole factory in the country rather than a new facility, another person said. Fiat is looking to fill unused capacity as the Viaggio sedan -- the only car currently made at the plant -- is forecast to miss sales targets for this year and 2014 by more than 60 percent, IHS Automotive estimates.
“Marchionne is far too late in China with a volume brand like Fiat,” said Giuliano Noci, vice rector for China at Milan Polytechnic. “Chinese customers are looking for aspirational brands, which Jeep is but Fiat isn’t.”
Turning to Chrysler’s Jeep to fill the gap in China underscores Fiat’s growing dependence on its American unit to compete with larger manufacturers. General Motors Co. and Volkswagen AG sell about 15 cars in the world’s largest auto market for every one Fiat delivers.
Representatives for Fiat and Chrysler declined to comment on the automaker’s production planning for China.
Marchionne, who runs both Fiat and Chrysler, is pushing to acquire the remaining 41.5 percent of the Auburn Hills, Michigan-based manufacturer to complete a combination.
Chrysler’s importance for Fiat will be evident tomorrow when the Turin-based company reports third-quarter earnings. Excluding Chrysler, Fiat posted a loss of 482 million euros ($664 million) in the first half as it lost market share in Europe, where auto demand has slid to a two-decade low.
Sales in Asia accounted for 4.1 percent of the 3.34 million vehicles Fiat and Chrysler delivered worldwide through September. Volkswagen, which entered the Chinese market decades ago, delivered 2.35 million cars there, helping the German manufacturer sell more than 7 million autos worldwide for the first time in the period. Both VW and GM aim to deliver more than 3 million cars in China in 2013.
“The small scale of Fiat’s Asian business means that this is lost in a group context,” said Kristina Church, an analyst at Barclays in London. The Italian company’s “European losses were almost three times the size of Asia-Pacific profits last year.”
While VW and GM’s Chevrolet have become mainstays for mid-market Chinese buyers, the Fiat brand has struggled to get much attention.
“I have no idea that Fiat produces cars in China, and I haven’t heard of the Viaggio,” said Miranda Sun, a 30-year-old Shanghai resident who works as a media officer for a business school. She’s owned a Chevrolet Lova for five years and is considering buying GM’s Buick GL8 minivan because it offers space to ferry around her child and parents.
That lack of awareness is holding back Viaggio sales, which started in September 2012, to about 40,000 vehicles this year and 54,000 in 2014, according to IHS Automotive. Fiat targeted production of 100,000 Viaggios this year and as much as 200,000 next year. The model was designed specifically for China and took aim at the biggest segment in the market.
“The sedan segment is a really crowded one in China with many established brands,” said Ian Fletcher, an analyst for IHS automotive in London. “There is huge appetite for the Jeep brand, which would also give the group much higher margins.”
The Viaggio sedan is built with the same basic underpinnings originally developed for the Alfa Romeo Giulietta. The new Jeep Cherokee uses the same underlying technology, cutting costs.
The tie-up with Guangzhou Automobile, in turn, makes the cars more competitive by avoiding a 25 percent duty on imports. A Jeep rollout was already in the cards after a preliminary agreement was reached in January between Chrysler and its Chinese partner. No details were announced at the time.
The offroad brand is more recognizable than Fiat in China because in the 1980s it was the first Western badge built in the country. No Jeeps are currently made in China after production shifted to Mercedes-Benz vehicles about 10 years ago by then Jeep-owner DaimlerChrysler.
“Jeep may attract the emerging middle class,” said Neil King, an analyst at Euromonitor in London. “The SUV market more than doubled in the last three years and premium brands keep on growing: There is space for Jeep too.”
For Chevy owner Sun, Jeep would more likely be on the shopping list than the Italian brand.
“Between Fiat and Jeep, I definitely have a much stronger impression of Jeep,” she said. “Jeep just has ‘tough’ image.”
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