Asia success still long shot for ambitious Fiat Chrysler

If Fiat Chrysler Automobiles wants to become a significant force in Asia, it needs to succeed in China. But its track record so far in the world's largest automobile market raises doubts about its ability to deliver on growth promises, analysts say.

The newly merged auto company has been present in China for some time, but it has a market share of only 0.6 per cent both in that country and in the Asia-Pacific region.It lags far behind rivals that are truly global players, including Toyota Motor Corp, Volkswagen AG, General Motors Co and Ford Motor Co.

Building muscle in China by producing Jeeps and more Fiats locally is a pillar of a new turnaround plan unveiled by Chief Executive Sergio Marchionne earlier this week as he pushes to boost global sales by as much as 60 per cent to 7 million cars by 2018.The strategy was widely criticized by analysts as overly ambitious, causing Fiat Chrysler shares to fall sharply on Wednesday.

"Not being present in Asia means being outside half the global car market," said Andrea Giuricin, transport analyst at Bicocca University in Milan, Italy. "That's a very big problem for Fiat."

Fiat Chrysler has been over-reliant on three car markets: United States, Italy and Brazil. Marchionne acknowledges the world's seventh largest auto group needs to catch up rapidly in Asia in order to compete in a cutthroat industry hurt by Europe's still-soft demand.

In addition, demand is now flagging in some of the automaker's key emerging markets including Brazil.

Fiat Chrysler sold 130,000 cars in China last year, compared with just over 3 million vehicles each for Volkswagen and GM.

It wants to sell 850,000 vehicles in China by 2018 and raise its market share there nearly fivefold to 2.8 per cent — targets analysts call a stretch given the intense competition and the company's problems in getting a grip on Asia so far.

"The primary driver of growth will be the localization of our fleet," Mike Manley, head of the Asia Pacific region for Fiat Chrysler, said at Tuesday's strategic presentation.  Producing in China means avoiding import duties as high as 25 per cent. Fiat Chrysler is also betting on achieving improved margins by leveraging Jeep, a more recognizable brand than mass market Fiat.

The two automakers first became aligned in 2009 when Italy's Fiat helped Chrysler emerge from its US government-led bankruptcy. The new, combined company was formed in January when Fiat acquired full ownership of the No. 3 US automaker.China's auto sales are seen jumping nearly 50 per cent by 2020 to 30 million vehicles, according to IHS Automotive, which sees the U.S. market rising only slightly to about 16.4 million vehicles by 2020.

Together with its existing joint venture partner Guangzhou Automobile Group (GAC), Fiat Chrysler plans to start making Jeeps in China by late next year, producing the Cherokee first, followed by its compact Renegade model. The Wrangler and the Grand Cherokee will remain imported products. 

Analysts said that while China is a crowded, fractured market with more than 100 brands, Fiat Chrysler could still gain a foothold with Jeep, but volumes may not live up to the company's expectations.