Sergio admitted that he misread the Chinese market, and what worked for Jeep in the United States wouldn't work in China. He and Manley made the plan tailoring the Jeep brand for China with a lineup that wouldn't ever be sold in North America, and (in many cases) Europe.
The first models of this new direction of Jeep in China was the Commander and Grand Commander. Other actions include getting rid of some Chinese dealers, as well subsidizing other Jeep Chinese dealers ,localizing the advertising, and brand messaging with a local identity.
These efforts so far however have been highly unsuccessful, as Jeep sales have fallen below 75,000 in 2019, and is headed below 50,000 in 2020. The Chinese market have gone through a rough two years which makes it tricky to fully judge performance , but the underperformance is clear as in 2017 Jeep sold 242,000 in China which of itself is far from Sergio's 500,000 target.
Carlos Tavares have been very vocal that neither FCA or PSA been successful in the Chinese market, and that Stellantis would need a new direction in China.
When during the Q3 2020 Sales conference call, PSA's Chief Financial Officer made the following comments in response to a question about Stellantis in the Chinese market:
Third, China. Where do we stand? And have you changed anything in the last 6 months? Or is it maybe a little bit on hold? And then following up on Stephen's question on EV. Can you just give us a bit more details behind maybe year-to-date pure BEVs sold, order backlog there, the same for PFs as well? Can you give us some absolute numbers in terms of the -- how many cars have been sold? And how big is the order book?
Philippe de Rovira
Okay. Maybe I'll start with the last one. Up to now, our weight of LEV indices are 6%. Within the 6%, a bit more of -- we are like 60% BEV and 40% PHEV to make it simple. The order book is at a very significant level because it covers more than what we need by the end of the year. So -- and the dynamic is good on the BEV and PHEV. You remember that maybe our -- sorry to repeat myself maybe for some of you, but in the past, we had said that we could go to the decision to limit ourselves on LEV at the end of the year for profitable reasons. But as I've just mentioned, the dilutive effect is much lower compared to what was expected. So we are not limiting anything, and we will let the things flow naturally as the customer are asking for cars.
In terms of -- well, for China, that was your third question. In the last 6 months, the big item was the sale of the Wuhan plant, Wuhan 1 plant. So it means that we have made a significant progress in the reduction of capacities. You remember that in DPCA, we started -- well in China, we started with 5 plants. We've sold the Changan 1. We've closed the Wuhan 2 in DPCA, and we sold the Wuhan 1 which is something that was a very significant cash-in that allowed to reduce the debt of DPCA, which was an important thing.
After that, we've got 2 plants left, and we've been working on the reduction of fixed costs. But it's also fair to say that we've worked a lot on the planification of what will be Stellantis in China because it's probably not reasonable to think that we will continue with so many brands, so many platforms, so many car lines in Stellantis given the volumes that the combined entity is doing.
He pretty stating given the combine FCA-PSA Chinese volume it is reasonable to believe in capacity/lineup cuts which brings to:
The Shanghai daily China Business News reported this month that Fiat Chrysler Automobiles is likely to exit the Chinese market by withdrawing investment in its joint venture with state-owned Chinese automaker GAC Motor Co., citing unnamed sources and limited local sales of the Jeep brand.
“That’s inaccurate speculation,” Massimiliano Trantini, FCA’s COO for Asia Pacific, told Automotive News last week at FCA’s Asia Pacific headquarters in Shanghai.
SHANGHAI — Product quality challenges have dragged down Jeep’s performance in China, but the brand is not going to leave the market. Jeep’s top executive in China said the brand has fixed problems with its local partnership structure and product quality and is on track to revive local sales. The...
carsevermore.com
Note it wasn't a full denial(by FCA's Massimiliano) , and despite the Chinese Newspaper error in conflating ending the Joint-Venture with Guangzhou(GAC) with pulling out of China much of the newspaper story checks out with the comments from PSA's CFO .
1: PSA's CFO is clearly concern about capacity in China
2:Closing FCA's Chinese plant and ending the relations with Guangzhou helps with capacity concern
3:While becoming a restricted shareholder (no Board seats, must vote in-line with other Stellantis shareholders) ,Dongfeng still is a shareholder, and helped save PSA back in 2014 so Dongfeng as Stellantis's Chinese partner makes sense given the relationship.
4:Can't just flip a switch and start making Jeeps at a PSA plant for local Chinese production...which means...
5:Goes back to ''limited''/'limiting'' of lineup/sales/offerings AKA Detroit & Toledo exports to China of Gladiator/Wrangler/redesign Grand Cherokee family.
Peugeot brand (seems like )will be Stellantis's main brand in China, while with Chinese trade restrictions on top of Gladiator/Wrangler/Grand Cherokee prices will firmly move the Jeep in the Chinese market to higher end-premium specialty field. Now this is where context from Carlos is need, but base on what's (info) available the Jeep Chinese volume gets stabilize on premium pricing exports (Gladiator/Wrangler/redesign Grand Cherokee family) and Jeep Chinese volume starts growing to 80,000-100,000 annual sales. Only then would local Jeep production would be reintroduce in China but with models that are more in keeping of premium pricing.
If so, then is Carlos either limiting the Sergio's/Manley's '' More urban , less focus on off-roading'' Chinese direction of Jeep to just the advertising/how the Jeep presents itself to the Chinese , or going as far too scrap the Chinese direction all together with the belief that there are Chinese buyers who wants ''Real Jeeps/the Icons of Jeep'' and is wiling to pay serious large amounts of money to buy them out of uniqueness.
Either way it Carlos decision likely shows one main problems of the current version Jeep China was launching with the Cherokee. Cherokee being an odd package to start, as well poorly positioned, but it lacked the features & creature comforts of expected out premium vehicles while being outmatched in economy & usability desired out mainstream CUV's.
In 2016 timeframe a bunch of local value brands got launch in the Chinese market with CUV offerings that undercut & outclassed the Cherokee which also lacked polish & uniqueness to play premium which lead to massive incentives that lead to some dealers throwing in the towel on FCA. Cherokee was neither fish nor fowl in China then came the engine quality problems that even made it to Chinese Government ran-Media outlets. Getting off to a bad start with the wrong product is ruinous for any relaunch, that exactly what FCA did with the Cherokee in China.
We will see from the Stellantis reset of China can Jeep finally make a solid stand, and how radically different Jeep will be depending on region. With the Guangzhou Joint-venture ending I expect $800 million-$1.2 billion cash charge, along with al least a $2 billion non-cash writedown in China.
PSA CFO link:
https://seekingalpha.com/article/43...f-on-q3-2020-results-earnings-call-transcript
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