By Maëlle Alquezar
China is a goldmine for car manufacturers. Since 2009 it has been the world’s largest car market. The car industry has experienced record sales for the past few years in China. But Fiat was not part of this phenomenon. Let’s find out why the Italian Group failed for over thirty years to enter the Chinese car market.
Seeing the country’s potential, Japanese, American and European car manufacturers quickly decided to target China. In order to do so, they elaborated joint-ventures with local car manufacturers, created factories and adapted their car models for the market. And their strategy has succeeded. For instance, General Motors sold more cars in China than in the United States in 2010 and it is planning to introduce nine new or restyled models to the Chinese market in the next five years. They have also announced that they will build four more factories and create 6,000 new jobs.
However, Fiat didn’t follow the trend at first and lagged behind rivals due to an inappropriate strategy. Everything started in 1982 when a Chinese manufacturer visited Fiat in Italy to offer a joint-venture. But the company didn’t really believe in the potential of the Chinese market so the manufacturers left Italy for Germany and established a joint-venture with them instead.
The Italian group realised its mistake and decided to expand its models into China in 1986 through a joint-venture with Iveco and Nanjing Automotive. In 1999, Fiat signed a joint-venture with Nanjing Automotive but the group was already far behind its competitors. In 2002, after investing around 330 thousand euros (i.e. almost £280,000), it started the production of the following models: Palio, Siena and Perla.
However, introducing three old car models to the Chinese market was not enough to adapt to the market trend. Along with this unsuccessful strategy, Fiat experienced management issues (the joint-venture’s president changed four times) and they achieved much lower sales than expected. As a consequence, the joint-venture split up and its factory was sold to Volkswagen in 2007.
However Fiat decided to persist with the Chinese market by establishing a new joint-venture with Chery. The aim of this partnership was to create 175 thousand Fiat and Alpha Romeo cars, but this strategy was cancelled in 2009. As a consequence, Fiat established another joint-venture with Guangzhou Automobile Group Co and invested 400 million euros (i.e. around £337 million). In 2011, Fiat aimed to sell 300 thousand cars in China by 2014. To do so, Fiat was relying on its alliance with Chrysler, which was the first American automaker to build vehicles China.
Lorenzo Sistino, Fiat’s head of international operations confirmed its ambition to export small cars and green technology to the Chinese market. The Fiat 500 was introduced in China last year and was supposed to be the company’s “weapon”. However, sales of the Fiat 500 didn’t really take off in 2012.
What went wrong with Fiat’s export strategy in China?
As mentioned below, Fiat experienced management issues and failed to adapt their cars to the Chinese market. Indeed, while Chinese people are looking for bigger cars than in Europe, Fiat just imported old models without adapting them to the country.
If we compare this strategy with the other big car manufacturers, we notice that most of them modified the models making them bigger than the originals in order to match the Chinese expectations. Take the example of the Volkswagen’s Passat. The Chinese version is larger and longer than the European models which is a perfect example of adaptation while Fiat just imported the models without making any changes.
Creating a Fiat 500 in China that is adapted to the market trend could be an alternative, but it won’t be a piece of cake. According to Chinese social networks and blogs, both experts and potential clients are doubtful of its possible success since small cars can be perceived as low value, even if equipped with the best technology. The price of the Fiat 500 might be too expensive for the country given that numerous competitors offer small cars with very competitive prices in China.
However, even if its market shares remain very low (0.39%), Fiat-Chrysler Chinese sales soared by 45% in 2012 compared with 2011 which is an encouraging growth rate. The group also announced its plans to reintroduce Jeep – a brand of Chrysler Group – on the Chinese market whose sales more than doubled last year. After 30 years of mistakes in the Chinese market, Fiat is at last on the right track but still has a long way to go. If the group wants to succeed, it will have to adapt to the Chinese trend and expectations which has not been the case so far.
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