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 yzhang1044@bloomberg.net;
Tommaso Ebhardt in Milan at tebhardt@bloomberg.net
To contact the editors responsible for this story:
Anand Krishnamoorthy at anandk@bloomberg.net
Chua Kong Ho, Sam Nagarajan

COVER STORY: Article on China’s Automotive Aftermarket published in China Automotive Review

China Automotive Review, August 2017

Our recent article on the rise of China’s Automotive Independent Aftermarket was published as a cover story in the August edition of China Automotive Review.

Volvo owner Geely, Jaguar-powered Tata Motors’ shares diverge

Bloomberg News, August 14, 2017

By Bloomberg News

Since Geely’s US$1.5 billion purchase of Sweden’s Volvo Cars in 2010, the Chinese automaker has seen the share price of its listed unit increase sixfold in Hong Kong trading. SOURCE: EPA

(Bloomberg) — Tata Motors Ltd. and Zhejiang Geely Holding Group Co. both bought iconic luxury brands from a struggling Ford Motor Co. in the wake of the global recession. Both acquisitions were met with skepticism from investors, who now view the two companies very differently.

Since Geely’s $1.5 billion purchase of Sweden’s Volvo Cars in 2010, the Chinese automaker has seen the share price of its listed unit increase sixfold in Hong Kong trading. India’s Tata Motors, which bought Britain’s Jaguar Land Rover two years earlier for $2.5 billion, has merely doubled in the same period.

The contrast is even starker if one shortens the timeframe: Tata is down about 21 percent this year, while Geely is up 149 percent.  The difference, says Jochen Siebert, a Singapore-based automotive consultant, lies in what the companies have done with their landmark purchases. Under Chairman Li Shufu, Volvo Cars was able to lower its costs and gain economies of scale by manufacturing and selling in China, the world’s largest auto market. Geely in return benefited from the technology of the more established Swedish automaker through the development of common underpinnings, which Volvo Cars also uses for its smaller models.

When Tata Motors wanted a partner to help it break out of the domestic India market, it looked not to its luxury division, but to Volkswagen AG’s Skoda. JLR and its Indian parent were just “too far from each other” in positioning, preventing them from creating any synergies between them, said Siebert.  Talks about a partnership between Skoda and Tata ended last week without a deal as the projected cost savings fell short of expectations, leaving the latter without a global partner.

“Tata sees JLR as a standalone and a financial shareholding,” said Siebert, managing director of JSC Automotive Consulting. “As long as Tata doesn’t want to develop into a higher-positioned brand in its own right, there is just no way to cooperate with JLR.”

Volvo’s Ethos

Tata didn’t immediately offer a comment on the market perception of its acquisition of Jaguar Land Rover. A spokesman for Zhejiang Geely Holding said in a message sent by WeChat that the success of the acquisition “has been down to Volvo’s strong product range and customer-centric design and engineering ethos.”

Tata is now almost entirely dependent on its luxury unit for profits. Jaguar Land Rover accounted for 78 percent of the group’s total revenue and 96 percent of its operating income.

Sales of Tata’s own namesake brand of vehicles contributed 1.3 percent to operating profit, behind that of construction equipment.  This has made the parent vulnerable to any hiccups at the British unit. When JLR said it expects pressure on profit margins to continue due to higher incentive levels, investors sent Tata’s stock down 8.6 percent to a 15-month low on Aug. 10.

Deliveries at JLR grew at a slower 4 percent pace in the April- to-June quarter because of weak demand including for Land Rover’s Discovery Sport and Range Rover Sport SUVs.  JLR also counts China as a major market and Tata can do little to help in the world’s biggest auto market given its lack of presence there, said Bill Russo, managing director of Gao Feng Advisory Co.

By contrast, Volvo Cars was the first Western carmaker to export a premium China-made car to the U.S. in 2015 with the S60 Inscription. The company last year began building high-end versions of its S90 premium sedan in Daqing, China for global exports and plans to assemble vehicles in India this year, starting with the XC90 SUV. Geely and Volvo Cars also worked together to develop a compact-car platform that will be used by Geely’s upscale Lynk & Co. brand.

Geely’s investments in factories and in-house technologies have resulted in a series of new car models, a spokeswoman for Volvo Cars said in an email response. The transformation continues with two new joint ventures formed between Volvo and Geely this month, she said.

Geely has thrown a lot of money at Volvo without concern for an immediate return, a luxury available to an unlisted company, says Janet Lewis, an auto analyst in Hong Kong with Macquarie Group Ltd. This has enabled the Swedish company to invest in technology, whereas it was relatively starved of development money under Ford ownership, she said.  “The longer-term challenge for Volvo is its tiny scale.  Even combined with Geely for volume, it is going to have a hard time meeting the increasing technology needs when it is up against well-funded giants like Toyota, VW, Renault-Nissan-MMC and GM,” said Lewis. “JLR faces similar challenges with its small scale and its main hope is that Tata ties up with a global partner in India.”

To contact Bloomberg News staff for this story:
P R Sanjai in Mumbai at psanjai@bloomberg.net;
Yan Zhang in Beijing at yzhang1044@bloomberg.net
To contact the editors responsible for this story:
Anand Krishnamoorthy at anandk@bloomberg.net
Chua Kong Ho, Abhay Singh