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Next person? Chinese tram pushes Stellantis’ Jeep into the street


The first joint venture failure by a foreign brand in the electric vehicle (EV) era, the bankruptcy filing on October 31 marked a turning point in which Chinese automakers are beginning to surpass through established international brands.

The bankruptcy of Stellantis’ Jeep joint venture in China could spell trouble for other global automakers whose output has fallen over the past five years in the world’s biggest auto market, as companies domestic companies quickly overtaken.

The first joint venture failure by a foreign brand in the electric vehicle (EV) era, the filing for bankruptcy on October 31 marks a turning point in which Chinese automakers are beginning to surpass through international brands that have long dominated in giving consumers what they want.

“I don’t expect Stellantis to be an isolated case,” said Marco Santino, a partner at management consulting firm Oliver Wyman. “Probably nearly all Western automakers will have to consider the industrial logic of their presence in China.”

Some of the factors that led to the failure of the Jeep venture were particular to Stellantis – and the former car conglomerate included among its 14 brands. But data compiled by consulting firm LMC Automotive for Reuters reveals a problem shared by several other global automakers: China’s factory utilization has plummeted.

The fewer cars a factory produces, the more likely it is to lose money.

Jeep’s failure in China came less than two years after Stellantis was founded by the merger of PSA and Fiat Chrysler.

During the preparations for the deal, CEO Carlos Tavares said that no automaker could not be present in China and that the expectation was that the two companies would be better equipped together to achieve this. progress there.

But Stellantis earlier this year said it would end its joint venture with local partner Guangzhou Automobile Corporation (GAC), just months after announcing it would increase its stake from 50% to 75%.

The turnaround leaves the world’s number three automaker in terms of sales with limited production only Peugeot and Citroen in China, which it says may also shut down operations, though it has yet to decide on that. .

Meanwhile, Stellantis’ Tavares has launched a “lightweight” strategy whereby the automaker will import more profitable cars like Maseratis and Jeeps into China.

‘DEEP SHOCKING’

The automaker’s outspoken Portuguese CEO has complained that “political influence is increasing day by day” in China and accused Stellantis’ joint venture partner GAC of acting in bad faith. .

The GAC said it was “deeply shocked” by the critical comments from Stellantis.

According to LMC data, it is estimated that Stellantis’ full-year capacity utilization at assembly plants in China will decline to 13% in 2022 from 43% in 2017.

Other mainstream brands, including Volkswagen, common engineFord, Mitsubishi and hyundaihas also seen factory utilization drop from more than 30 to more than 50 percentage points over the past five years.

Some – especially premium brands Mercedes and BMW car – saw a much smaller drop.

At the same time, global automakers’ sales in China have fallen as local rivals take off as Chinese automakers embrace electric vehicles and in-car software. much faster consumer-centric.

“Over the past five years, the (China) market has changed markedly from where foreign companies have the right to win thanks to their foreignness to one where the playing field is much more level,” said Bill Russo, head of head consulting firm Automobility Ltd in Shanghai, said. and a former Chrysler executive.

He added: “Chinese companies really have a first-mover advantage because they accept electrification more quickly than foreign companies are willing to do.

While all-electric cars account for an average of 5% of the models sold by foreign automakers in Japan Chinathey make up 30 percent of Chinese automakers’ models, according to LMC data.

HIGHLIGHTS COMPETITION IN THE EUROPE

Some Chinese rivals like BYD, which have more electric models in their lineup, are also aiming to develop in Europe.

This means that as global giants Volkswagen, Ford and GM work to bring more electric models to market, they face stiff competition from younger Chinese rivals that have adapted. rapidly with the changing tastes of consumers.

“They are far behind the domestic (Chinese) players,” said Justin Cox, global production manager for LMC.

They also had to overcome an image rooted in the technology of the internal combustion engine era.

GM is relying on a wide range of electric vehicles to recoup profits from its China operations – which fell 44 percent to $477 million in the first nine months of this year — to $2 billion by 2030.

“I’m not going to jump to conclusions about China based on 2022,” Chief Financial Officer Paul Jacobson told reporters earlier this month. “We still feel good about where we’re going.”

Volkswagen said in a statement that China was in a “special situation” as a result of the pandemic, a global shortage of semiconductors and a “rapid transition to electric mobility” that had affected production capacity across the industry.

“Volkswagen continuously evaluates these particular factors and adjusts production plans at an early stage if necessary,” the automaker said.

Ford said it is working to overcome manufacturing challenges caused by COVID-19 and semiconductor shortages.

SMARTPHONES ON WHEEL?

The Jeep brand was originally brought to China by American Motors Corp before being taken over by Chrysler in 1987. It sold the same Jeep Cherokee model for 20 years.

Automobility’s Russo said over the years Chrysler, Fiat and Peugeot – all part of Stellantis and all with their own Chinese ventures – have struggled before becoming part of the same company. company. car Coporation, group.

“These are real companies that have never found the recipe for success in China,” Russo said.

Michael Dunne, CEO of California-based consulting firm ZoZo Go and a former GM executive, said that as domestic automakers grow in China, international brands grow economy will find it harder to obtain local permits and will not be able to access loans from state banks. .

“Stellantis was a canary in the coal mine,” Dunne said. “Forever, foreign brands are the favorites in China.”

“No more.”

As the formula for success in China has changed, consumers want electric cars like smartphone on the wheel where the emphasis is on connection and application rather than performance – to the point where electric car makers like Nio have built-in selfie cameras in some models to appeal to younger buyers.

So far, Mercedes and BMW have retained their appeal, partly because they retain a good image as coveted brands in China, but also because Chinese carmakers have yet to move on. attention to the production of luxury electric vehicles.

LMC’s Cox said other international brands might be able to return to a higher market share in China, but it will take time and a lot of investment in new products.

“Once a brand is spoiled or at least looks claustrophobic, outdated, or unattractive, it can be difficult to achieve some resounding success,” says Cox. “Some companies with a clear mainstream position can be very difficult to return to.”


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