Fiat looks set to scrap its Chinese partnership with Nanjing Automobile Corporation in the near future following an extraordinary attack on the Chinese company by Fiat CEO Sergio Marchionne, writes Mark Bursa.
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Speaking at the launch of the Fiat Linea sedan, a car that Fiat wants to build in China, Marchionne pulled no punches in his criticisms: “I’m fundamentally displeased with the level of interaction with Nanjing on the passenger car project,” he said.
Now it looks increasingly like Fiat will exit the Nanjing operation and set up a car production deal with rival Chinese firm Chery, with which Fiat already has an agreement on engine supply. “If we can’t get a conclusion with Nanjing we’ll look at alternative arrangements.”
Marchionne said he had made several trips to China over the past three years in a bid to kick-start the struggling Nanjing Fiat project, which built just 31,300 Palio, Siena and Palio Weekend models last year, 13% fewer than in 2005, and well below the venture’s current capacity of 100,000.
“I’m not going to China to look at the tourist attractions,” said a clearly frustrated Marchionne, who had stonewalled earlier questions about the Chinese project but finally responded when a Chinese journalist put him on the spot.
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By GlobalData“I have personally devoted a large amount of time to attempt to resolve the huge differences that would allow Nanjing Fiat to grow to [a sales target of] 300,000 cars a year by 2010,” he continued. “All those efforts remain unanswered to this day.”
Marchionne said that despite three years of negotiations there was “no agreement on a product portfolio for China”. He blamed Nanjing’s acquisition of MG Rover as a major cause of the problems: “They have been distracted by other brands that are of no interest to us,” he said.
Nanjing relaunched the MG brand at last month’s Shanghai Auto Show. The Chinese company was the surprise winner for the assets of the collapsed UK automaker in 2005. The Chinese company paid $92m for the MG brand, the design rights to the TF sports car and manufacturing equipment from the Longbridge plant.
Nanjing is China’s oldest automaker with a history stretching back to 1946. It started production of the Palio from CKD kits in 2001 – just before the automotive industry boom. But sales have struggled against more aggressive rivals, and Fiat has failed to establish a footprint in China.
Indeed, relations look to have broken down completely. Chinese media reported Nanjing chairman Wang Haoling as saying: “I don’t think Fiat has a good understanding of the Chinese market,” and this remark is likely to have pushed the relaxed Marchionne to breaking point.
Chery represents a much more ambitious and progressive partner. It is a much younger and more entrepreneurial business than Nanjing, and has already demonstrated a willingness to build partnerships with western companies through its deal with DaimlerChrysler, which will see it building the Dodge Hornet small car under contract for supply to the West, in return for technology transfer to allow it to build Chery-brand small cars on the same platform.
And last October, Chery signed a MoU with Fiat to supply 100,000 Chery-designed 1.6- and 1.8-litre gasoline engines for Fiat cars built both in and outside China. When he announced the deal, Marchionne praised Chery as “a young and modern company with a solid technical background”. Under Chinese Government rules governing the auto industry, local producers can form alliances with up to two foreign carmakers – so Chery would be likely to win approval for a Fiat JV alongside its DaimlerChrysler deal.
Targeted alliances are very much part of Marchionne’s strategy: “Fiat is open to the concept of cooperation with everyone,” he said. Already talks with Chery have progressed beyond engines – regardless of the outcome of the Nanjing spat, Chery is likely to be chosen to build Alfa-Romeo models in China. “In the relation with Chery we see the potential for a wider co-operation both in powertrains and, eventually, in other automotive sectors,” Marchionne said last year.
What Marchionne would like to see is a smooth handover of the Nanjing business to a new investor, and this could bring another option into play – Shanghai Automotive (SAIC), which has been at loggerheads with Nanjing since its smaller rival gazumped it for control of Rover’s assets. Nanjing owns the intellectual property of the Rover designs and has produced its own versions of the cars under the Roewe badge.
SAIC has far greater industrial clout than Nanjing, which has struggled to raise the funds to complete the MG relaunch. However, its hokey Roewe brand is unusable as an export nameplate – especially with the Rover nameplate now owned by Ford.
SAIC chairman Hu Maoyan has made no secret of the fact that he’d like the MG brand, and actively courted Nanjing at the recent Shanghai Auto Show: “We are looking forward to cooperation with Nanjing,” Hu told the Financial Times. “We need to use state assets more efficiently and effectively. We believe the leaders of Nanjing Auto are smart enough to understand this principle.”
An SAIC takeover of Nanjing is one possible option – and that could put the Nanjing-Fiat operation in SAIC’s hands. However, SAIC already has JVs with General Motors and Volkswagen, so this could prove problematic. However, SAIC has historic links with Chery – it was a shareholder in Chery until GM forced it to sell its stake three years ago after the design piracy dispute, when Chery launched the QQ minicar, a ‘lookalike’ of GM’s Matiz model. So a compromise solution could be reached.
The smart money is on a Fiat-Chery deal, and sooner rather than later. Marchionne wants to get the Fiat Linea into production in China as quickly as possible, and Chery surely represents the best way to achieve this. And judging from his recent performances, what Marchionne wants, Marchionne gets.
Mark Bursa
