Fiat Said Near Deal to Start Jeep SUV Production in China

Fiat SpA is nearing a deal to begin producing Jeep vehicles in China after making concessions to its Chinese partner over the manufacturing site, two people familiar with the talks said.

Fiat recently agreed to locate Jeep assembly near the base of Guangzhou Automobile Group Co. in the Panyu district of Guangzhou, backing off a previous plan to use another site, the people said asking not to be identified because the talks are private. The accord is still subject to final approval, one of the people said.

The agreement paves the way for Jeep, which was the first foreign brand to be assembled in China in 1983, to make a return after production stopped in 2006. The move could tie up additional capital as Chief Executive Officer Sergio Marchionne seeks to forge a global automaker by merging Fiat and Chrysler.

The Chinese government approved Guangzhou Auto and Fiat’s plan to invest 4.7 billion yuan ($770 million) in a new factory, which will have an initial production capacity of 60,000 units a year, according to a statement posted on the website of the Development and Reform Commission of Guangzhou Municipality earlier this year.

Fiat shares rose 0.6 percent as of 10:53 a.m. in Milan trading. The stock has climbed 48 percent this year, valuing the company at 7 billion euros ($9.5 billion). Guangzhou Auto climbed 5 percent to 9.31 yuan in Shanghai trading today.

China Cherokee

The Cherokee will probably be the first Jeep model built at the plant, one of the people said. Fiat is turning to Jeep after sales of the namesake brand failed to live up to expectations.

The Italian carmaker had previously considered building Jeep models at an existing facility in Changsha, where it began making the Viaggio sedan last year. To use spare capacity at that facility, Fiat now plans to add the Ottimo hatchback there in the first half.

A representative at Guangzhou Auto, who asked to only be identified by the family name Zhu, yesterday said the company had no information to release regarding a Jeep production site. A representative of Turin-based Fiat declined to comment.

Local production is key for competing in China because imported cars are levied with a 25 percent tariff. The Jeep Grand Cherokee starts at 579,000 yuan ($95,000), compared with $28,995 in the U.S.

“Jeep has a deep heritage in China, where sales of sport-utility vehicles keep on growing,” said Ian Fletcher, an analyst at IHS Automotive in London. “It’s a great way for Marchionne to expand in China and will also support other brands of the group in the country.”

Sales Surge

Boosted by the locally made Cherokee, Jeep sales in China are forecast to double from this year to about 53,000 cars in 2015, pushing Fiat group deliveries to 142,000 from 66,000 in 2013, according to estimates from IHS Automotive.

Although Chrysler and its Chinese partner said in January they had reached a preliminary agreement to produce Jeep vehicles in China, no details were disclosed at the time.

The Jeep brand is more recognizable than its Italian parent in China because it was the first Western badge built in the country. Jeep manufacturing in China ended after production shifted to Mercedes-Benz vehicles about 10 years ago by then-owner DaimlerChrysler.

Fiat’s Jeep push in China underscores the Italian carmaker’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 that Fiat delivers.

— With assistance by Tian Ying, and Tommaso Ebhardt

Before it's here, it's on the Bloomberg Terminal.