Chrysler's Jeep Faces Hurdles to Make Comeback in China

Brand Name Is Strong, but Road Is Long to Start Local Production

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Legendary Hollywood actor Clint Eastwood talked about "Halftime in America" in a controversial spot aired during the Super Bowl.

In China today, Chrysler's Jeep faces its own halftime moment.

The Chinese SUV market has recorded explosive growth, with nearly 2 million units sold in 2011. To put that in perspective, the SUV market alone in China is larger than total annual sales in Italy or Korea.

But Jeep delivered only 22 ,294 vehicles last year, relegating the proud brand to a status of a niche player in China. That count looks even smaller given that Jeep sold more cars 20 years ago through its former joint venture, Beijing Jeep, than it sells today.

Standing between Jeep and a glorious comeback in China are three formidable obstacles.

First, Jeep must secure a license to produce vehicles in the country. Imports are subjected to a 25% tariff. With a 17% value-added tax plus punitive new taxes on vehicles imported from America, the price of a Jeep Grand Cherokee can top $80,000 (503,000 yuan).

Talks are under way with Fiat's partner, Guangzhou Automobile Group, to produce Jeeps in China. That would reduce prices considerably, but Beijing's recent decision to remove incentives for foreign investment in the auto sector will slow progress -- and toughen the terms. Jeep's outsider status is all the more ironic because Chrysler was the first foreign automaker to get a license for local production in China in 1983.

The second challenge is for Jeep to make its Patriot and Compass models as appealing as the new Grand Cherokee. That is not the case now, because Chrysler has never invested the resources to make smaller Jeeps irresistibly great. Smaller SUVs such as the Honda CR-V and Volkswagen Tiguan are Chinese consumer favorites -- the market's sweet spot. Jeep must meet or exceed those offerings to get in the game.

Jeep's third major hurdle -- after-sales parts and service -- may be the most challenging. Ever-demanding Chinese consumers expect high levels of convenience, quality and service.

Jeep leaders in the region are aware of the challenge. Mike Manley, head of Fiat-Chrysler's Asian operations, said last month that Jeep intends to more than double its Chinese network of 50 dealerships.

That would be a step in the right direction, although Jeep would remain a niche brand. Competitors such as General Motors, Volkswagen and Hyundai have more than a thousand dealerships each in China.

Arguably, Jeep must win big if Fiat hopes to make a success of its re-entry into the China market.

And that may be difficult, since Chinese consumers view Chrysler's products as heavy gas-guzzlers, misfits in a market where consumers rate fuel economy a top priority.

Working in Jeep's favor -- its ace in the hole, its secret recipe -- is the illustrious brand name. Chinese consumers put great stock in prestigious brand names, and Jeep still carries a certain swagger in the People's Republic.

As Mr. Eastwood said -- time for the second half to begin. If Jeep can win approval for local production, put more gusto into the Compass and offer good service, China's SUV market offers an upside found nowhere else in the world.

Michael Dunne is president of Dunne & Co., author of American Wheels Chinese Roads: The Story of General Motors in China, and an Automotive News columnist.

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