Jeep JV in China to file for bankruptcy

THE joint venture between Stellantis (previously FCA) and Guangzhou Automobile Group – which produces Jeep vehicles for the Chinese market – will file for bankruptcy.

As reported by GoAuto in July, an “orderly termination” of the joint venture meant bankruptcy was a likely option for China’s oldest foreign brand, which has pledged to continue providing service support to its Chinese customers.

In a statement, Stellantis said: “The shareholders of the GAC-FCA Joint Venture, Guangzhou Automobile Group and Stellantis, have approved a resolution authorising the Joint Venture to file for bankruptcy, in a loss-making context.

“Stellantis fully impaired the value of its investment in the GAC-FCA JV and other related assets in its first half 2022 financial results. Stellantis will continue providing quality services to existing and future Jeep brand customers in China.”

GAC, which approved the bankruptcy filing, said the joint venture had liabilities of almost 111 per cent of its assets of ¥7.3 billion yuan ($A1.56b), but that the bankruptcy would not have a significant impact on its operations.

The Chinese JV partner criticised Stellantis, saying it was “deeply shocked” by comments relating to the end of the business.

However, with sales of the Jeep Cherokee and Compass SUV declining sharply over the past four years – and the joint venture selling just 2000 vehicles to date this year – the announcement was perhaps inevitable.

In May this year, Jeep sold a single vehicle in China.

“It (the JV) had every right to be successful in a market that embraced sport-utility vehicles,” said former Chrysler executive and Automobility founder and CEO Bill Russo.

“But you cannot be running a 1980s business model when the 21st Century has arrived.”

In July, Stellantis CEO Carlos Tavares said the “political influence” of doing business in China had grown considerably over the past five years and that he did not see any major long-term impacts from terminating the joint venture with GAC.

Earlier this month, Mr Tavares took aim at Chinese manufacturers saying they should be subject to the same tariffs when exporting cars to Europe as European brands were when exporting to China.

Currently, Chinese manufacturers pay a 10 per cent tariff to import cars to the EU while a tariff of between 15 and 25 per cent is levied on European-built cars imported into China.

“Very simply, we should ask the European Union to enforce the same conditions in Europe for Chinese manufacturers under which we, the Western manufacturers, compete in China,” said Mr Tavares.

“The European market is wide open to the Chinese, and we do not know if their strategy is to grab market share at a loss and increase their price later.”

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

Foreign car-makers saw their share of China's market, now the world's largest, drop by 5.5 percentage points last year, to 45.6 per cent, according to the China Passenger Car Association.

According to Urban Science managing director Chee-Kiang Lim, the joint venture model, which China had insisted on as a condition of investment by foreign manufacturers, is under threat.

“The JV policy was originally designed to compel foreign brands to share their brands and technology with local Chinese (manufacturers) in exchange for access to China’s large, growing auto market,” he said.

“Now that Chinese auto-makers are more confident that they have closed the gaps with or even surpassed their foreign partners, we have to expect more JVs to unwind in the coming years.”

Tesla is the only global car-maker that was granted a waiver to produce cars in China without a joint venture.