Fiat set to make cars in China from 2011

Fiat, long a laggard in the fast-growing Chinese market, is to make cars and engines there from 2011 in a joint venture with Guangzhou Automobile Group.

The 50:50 agreement, signed in Rome yesterday, will see the partners invest more than €400m ($557m) and build a 700,000 sq m production plant in Changsha in Hunan province.

Fiat and GAC said the venture would have the capacity to produce 140,000 cars and 220,000 engines per year initially, but could later be expanded to produce as much as 250,000 cars and 300,000 engines annually.

The first model to be launched will be Fiat's Linea sedan, part of the mid-size "C" segment popular in China.

The venture will begin making cars in the second half of 2011, and receive Chinese government support under a programme to promote new investment in central China.

The Chinese government, represented at yesterday's signing ceremony by President Hu Jintao, wants to promote low-emission cars and consolidate its fragmented auto industry.

The deal with GAC comes amid increasing regional rivalry among China's rising automakers. GAC already has a joint venture with Japan's Honda that produces cars for export.

Fiat, which sells the bulk of its cars in Europe and South America, has been considered unlucky with its choice of partners in China - the world's second-largest car market after the US - where it trails nearly all other foreign carmakers.

The venture with GAC will launch into an intensely competitive market with more automakers and brands than America's.

"The small car segment is terribly crowded with Chinese players," said Arndt Ellinghorst, head of European auto research with Credit Suisse. "Yes, it's a growing market, but it's going to be tough."

In 2007, Fiat terminated an unsuccessful joint venture with Nanjing Automotive, which had been distracted by efforts to develop Britain's MG car brand, and has since been merged with Shanghai Automotive.

Since then, the Italian carmaker has been exporting cars from Europe to China, selling only about 3,000 to 4,000 there per year. This year, Fiat postponed plans indefinitely to form a joint venture with Chery Automobile, the privately owned Chinese carmaker.

China requires foreign carmakers to build vehicles and engines in joint ventures with local companies.

Fiat's parent group, which includes Iveco trucks and farm equipment producer CNH, has nine joint ventures in China employing about 13,000 people.

Sergio Marchionne, Fiat's chief executive, says the carmaker needs to build scale significantly beyond about 2m cars it sells a year to between 5.5m and 6m.

The Italian carmaker last month sealed an alliance with Chrysler of the US that will see it take an initial 20 per cent stake and build and sell small cars in the US under its own and Chrysler's brands.

Views:0