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Stellantis Jeep joint venture in China to file for bankruptcy

Published 10/30/2022, 09:03 PM
Updated 10/31/2022, 06:41 AM
© Reuters. FILE PHOTO: The logo of Stellantis is seen on a flag at the main entrance of FCA Mirafiori plant in Turin, Italy, January 18, 2021. REUTERS/Massimo Pinca
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(Reuters) -The joint venture that makes Jeeps in China will file for bankruptcy, partners Stellantis and Guangzhou Automobile Group (GAC) said on Monday, after a long decline for the oldest foreign auto brand in the world's largest car market.

The move comes after Stellantis' surprise decision in July to end the venture with GAC, only months after saying it would raise its stake to 75% from 50%.

Stellantis CEO Carlos Tavares at the time blamed the growing "political influence" in doing business with partners in China, while GAC said it was "deeply shocked" by Stellantis' decision.

Stellantis has since said it would pursue an import-based business model in China and there would be no major long-term impact from the break with GAC.

Importing means more tariffs.

Tavares added this month a similar strategy could be followed with Peugeot (OTC:PUGOY) and Citroen, the other brands Stellantis sells in China, meaning it could pull completely out of manufacturing in the country.

Sales for the GAC venture, which sold the Jeep Cherokee SUV and the Compass crossover, have been in sharp decline for the past four years. They plunged 50% in 2021 from the previous year to 20,396 vehicles.

For 2022, it has sold fewer than 2,000 vehicles, and in May reported selling just a single vehicle.

U-TURN

Stellantis' U-turn leaves question marks over its ability to thrive in China, where it is getting pummelled by international and local rivals.

"No global car company can afford not to be in the largest car market in the world," Tavares said in late 2020, just before completing the merger between Fiat Chrysler and PSA that created Stellantis.

The group is aiming for revenues in China to reach 20 billion euros ($19.8 billion) by 2030, or 7% of the expected total - a steep jump from the 3.9 billion euros of turnover in China, India and Asia Pacific in 2021.

Bill Russo, head of Shanghai-based consultancy Automobility Ltd and a former Chrysler executive, said the Jeep venture had failed to keep up with changes in the Chinese market.

"It had every right to be successful in a market that embraced sport-utility vehicles," he said. "But you can't be running a 1980s business model when the 21st century has arrived."

Stellantis said on Monday it had fully impaired the value of its investment in the GAC venture in its first half results, which it previously estimated at about 297 million euros.

GAC, which approved the bankruptcy filing, said the venture had liabilities of almost 111% of its assets of 7.3 billion yuan ($1 billion). The bankruptcy would not have a significant impact on its operations, the Chinese company added.

CRITICISM

Criticising both Europe's automotive market and Beijing's commercial policies - in contrast with a more cautious stance by Western competitors - Tavares said this month Chinese automakers should be subject to the same tariffs when exporting cars to Europe as European brands face when exporting to China.

Foreign automakers have been under growing pressure in China, where the market has shifted quickly to battery-electric vehicles and domestic brands have been taking market share.

Foreign manufacturers' share of China's auto market dropped 5.5 percentage points last year to 45.6%, according to the China Passenger Car Association.

Chee-Kiang Lim, managing director China at Detroit-based consultancy Urban Science, said the joint venture model - which China had insisted on to ensure foreign brands shared technology with local automakers - was under threat.

Chinese automakers are more "confident that they have closed the gaps with or even surpassed their foreign partners", so "we have to expect more JVs to unwind in the coming years", he said.

The bankruptcy is the latest chapter in a turbulent history for the Jeep brand in China.

The former AMC invested in a Beijing Jeep joint venture in 1984, the first such deal for vehicle production in China by an American brand. It then went through ownership changes after AMC was acquired by Chrysler and then Chrysler was bought by Fiat, which became Stellantis in 2021 after the merger with PSA.

© Reuters. FILE PHOTO: The logo of Stellantis is seen on a flag at the main entrance of FCA Mirafiori plant in Turin, Italy, January 18, 2021. REUTERS/Massimo Pinca

Tesla (NASDAQ:TSLA) is the only global automaker that was granted a waiver to produce cars in China without a joint venture.

($1 = 7.2660 Chinese yuan)

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