Manufacturing News

How Jeep can make a comeback in China

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

In China today, Chrysler's Jeep brand 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, China's SUV market alone 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 sales count looks even smaller when you consider 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 China. Imports are subjected to a 25 percent tariff. And when you add a 17 percent 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 drop Jeep prices considerably, but Beijing's recent decision to remove incentives for foreign investment in the auto sector will surely 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.

Small SUVs
Once local production is arranged, 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 today 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 key hurdle in China may be its most challenging: after-sales parts and service. Chinese consumers, an ever-demanding lot, 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 strong step in the right direction, although Jeep would remain a niche brand. By comparison, competitors such as General Motors, Volkswagen and Hyundai have more than a thousand dealerships apiece 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 holy grail, its secret recipe -- is of course, the illustrious Jeep brand name. Chinese consumers practically worship prestigious brand names, and Jeep still carries a certain swagger in the People's Republic.

As Clint Eastwood said, it is 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.

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