Fiat Finds New China Partner, Ending Two-Year Hiatus

Fiat SpA,Italy's biggest manufacturer, agreed to build cars in China with Guangzhou Automobile Group Co., signaling an end to a two-year carmaking hiatus in the world's fastest growing major auto market.

The two automakers will invest "more than 400 million euros" ($559 million) in the venture, Turin, Italy-based Fiat said in a statement yesterday. Production will start in the second half of 2011.

The deal is another step in Chief Executive Officer Sergio Marchionne's bid to turn Fiat into a global automaker, following the acquisition of Chrysler Group LLC and a bid for General Motors Corp.'s European unit earlier this year. Fiat has lacked a carmaking partner in China since 2007, when Nanjing Automobile Group Corp. pulled out of a venture amid plunging sales, locking Fiat out of a market that has grown 21 percent this year.

"Fiat has to return to China's car market if it wants to be a global player," said Ricon Xia, a Daiwa Institute of Research (H.K.) analyst. “Still, it will have to do a lot of work to beef up its brand awareness.”

The venture, which will operate a new factory in Hunan province, will initially make compact cars and have a production capacity of 140,000. The project is eligible for development aid from the Chinese government, Fiat said in the statement.

Lu Sa, board secretary of Guangzhou Auto, confirmed the deal, without elaboration. The company also has partnerships with Honda Motor Co. and Toyota Motor Corp.

Italy-China Trade

Fiat agreed a car-making deal with Chery Automobile Co., China's largest maker of own-brand cars, in 2007. The deal was put on hold earlier this year amid the global financial crisis. Fiat's Iveco unit makes commercial vehicles in China with SAIC Motor Corp.

The Guangzhou Auto agreement, which Italian Prime Minister Silvio Berlusconi and Chinese President Hu Jintao signed during a news conference in Rome, was part of a 2 billion euro package of trade deals announced as the two countries seek to expand commercial ties. Berlusconi said he wants Italy to be one of China's top three trading partners within three years.

Fiat fell 24.5 cents, or 3.5 percent, to 6.74 euros on the Milan exchange. The shares have gained 47 percent this year, giving the carmaker a market value of 8.08 billion euros.

Fiat intends to manufacture in China as economic growth helps the nation avoid the worst of the global slump in auto sales. China's increasing vehicle sales have put it on pace to pass the U.S. as the world's largest vehicle market this year.

Profit Slump

Chinese automakers have failed to turn higher vehicle sales into rising profit amid cutthroat competition. Combined profit at the country's top 19 automakers fell 28 percent in the first four months, while revenue declined 11 percent, according to China Association of Automobile Manufacturers.

Nanjing Auto ended the partnership with Fiat after its sales fell 38 percent in 2007 to 19,691 units. Volkswagen AG bought the venture's former factory.

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