21 Aug Marchionne’s Fiat Review Spurs Great Wall Interest in Jeep Brand

Bloomberg News, August 21, 2017

Sergio Marchionne’s plans to review Fiat Chrysler Automobiles NV’s businesses has one Chinese company expressing interest in purchasing its Jeep division, as Asian carmakers continue to seek European and American brands in search of technology and new markets.

A spokesman for Baoding, China-based Great Wall Motor Co. didn’t say whether the two companies have begun negotiations.  Fiat Chrysler manufactures Jeeps in China with local partner Guangzhou Automobile Group Co., which said it doesn’t have plans to buy the SUV brand. Fiat Chrysler declined to comment.  Great Wall Chairman Wei Jianjun has been trying to steer the SUV maker to sell pricier and more profitable models, recently introducing a new premium brand named WEY. Acquiring Jeep would put Great Wall on a similar path as Zhejiang Geely Holding Group Co., which bought Sweden’s Volvo Cars and recently sealed a majority stake purchase of Lotus, the British sports-car brand.

“From an SUV manufacturer’s point of view, to have a premium brand of the top of the portfolios, it makes sense,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler’s Chrysler unit in China. “But outside of off-road technology, Jeep is not necessarily known as a brand with strong technology pipeline in terms of EVs and autonomous driving. If you look at the future, the technology improvement it brings to Great Wall can be limited.”

Shares of Great Wall gained 2 percent to HK$10.12 as of 2:57 p.m. in Hong Kong trading. Fiat shares jumped to a record in Milan trading. The stock gained as much as 3.1 percent to
11.03 euros, valuing the company at 16.45 billion euros ($19 billion).

Premium SUVs

Building a full-fledged luxury marque would take years with no promise of success. A purchase of Jeep, however, would give the Chinese automaker a stable of world-famous models from the
Cherokee to the Wrangler. At a starting price of 209,800 yuan ($31,400), the Cherokee would also catapult Great Wall into the premium end of the market.

With prices beginning at 88,800 yuan, Great Wall’s H6 competes in a crowded field. In that price range, consumers have a wide array of SUVs to choose from, from Geely Automobile
Holdings Ltd.’s Boyue, Guangzhou Auto’s Trumpchi GS4 and Chongqing Changan Automobile Co.’s CS75 to BAIC Motor Corp.’s X65, to name just a few.

While buying Jeep would give Great Wall a boost in branding, it would also “face big challenges in the near future as the government tightens up requirements on emissions and oil consumption, just like Hummer, which was undermined by the U.S. emission rules years ago,” said John Zeng, LMC’s Shanghai-based managing director.

Chinese regulators in 2010 blocked the acquisition of General Motors Co.’s gas-guzzling Hummer brand by Sichuan Tengzhong Heavy Industrial Machinery Co., saying the company
didn’t provide a reasonable purchase plan.  Chairman Wei has warned of rising competition in the entry-level SUV segment.  The company is rolling out the new WEY nameplate at a time when sales of its flagship Haval H6 model, which accounts for half of its total deliveries, declined 5.5 percent to 263,872 units in the first seven months of this year.

Great Wall will probably report a 79 percent plunge in second-quarter net income to 537 million yuan later this week, according to the average analyst estimate compiled by Bloomberg.

To contact Bloomberg News staff for this story:
Yan Zhang in Beijing at [email protected];
Tommaso Ebhardt in Milan at [email protected]
To contact the editors responsible for this story:
Anand Krishnamoorthy at [email protected]
Chua Kong Ho, Sam Nagarajan