Multiple challenges in China await FCA's new CEO
SHANGHAI -- In addition to putting the brakes on a China sales slump, Fiat Chrysler Automobiles faces key challenges in the world¡¯s largest auto market that need swift action from new CEO Mike Manley.
These include addressing retaliatory Chinese duties on imported vehicles, meeting stiffer rules on fuel economy and electrified vehicle production and improving the quality and images of two of its key brands.
The slumping China sales dragged FCA¡¯s net income down 35 percent year on year for the second quarter, FCA said Wednesday, and forced the automaker to cut its revenue and profit expectations for 2018. (See related report in this newsletter.)
The lower shipments from its China joint venture came as ¡°a result of market decreases, particularly in the SUV segments, and increased competition from domestic brands in China,¡± FCA said.
In addition to the tumbling sales, FCA must address China¡¯s hefty duties on imported vehicles.
On July 6, the Trump administration slapped 25 percent tariffs on $34 billion of Chinese goods. The same day, Beijing retaliated by levying an equal level of punitive tariffs on U.S. imports, including vehicles.
In 2017, FCA delivered 16,545 imported Jeep vehicles in China, accounting for 8 percent of the company¡¯s local annual sales.
With U.S.-built vehicles now subject to 40 percent duties at the China border, FCA will have to produce more Jeeps in China to offset what looks like an inevitable sales decline for imports.
Another major challenge ahead for FCA¡¯s China operations is the pressing need to improve fuel economy of its product lineup and roll out electrified vehicles as required by local regulations.
Beijing has ordered automakers operating in China to reduce their average fleet fuel consumption to 5 liters per 100 kilometers (47 mpg) by 2020, down from 6.9 liters (34 mpg) in 2015.
And data collected by China¡¯s Ministry of Industry and Information show FCA, with an average fleet fuel consumption of 7.67 liters for 2017, has a long way to go to meet fuel economy requirements.
Next year, the Chinese government will enact a carbon credit program, which is essentially a production quota system, to goad automakers to ramp up production of electrified vehicles.
But FCA offers no such vehicles in China.
Another grave issue, also a more complex one, facing FCA in China is how to improve its image.
Since 2014, customer complaints have repeatedly surfaced in Chinese media about problems with chassis, engines and transmissions in Jeep and Fiat vehicles. GAC FCA, FCA¡¯s joint venture with state-owned Chinese automaker, have conducted several recalls to remedy the problems.
That has hurt the images of Jeep and Fiat.
By contrast, domestic Chinese carmakers such as Geely Automobile Holdings and Great Wall Motor Co. have moved upscale by launching crossovers and SUVs under newly created premium brands.
That explains why FCA has become more vulnerable than most of the other global automakers to competition from domestic Chinese brands, as it admitted in the statement Wednesday.
Since 2015, FCA has launched sales of four locally produced Jeep nameplates -- the Cherokee, Renegade, Compass and Grand Commander.
Although it still builds two sedans -- the Viaggio and Ottimo -- for the Fiat brand at GAC FCA, FCA heavily relies on Jeep for sales in China.
In the first half of this year, FCA¡¯s China sales also fell 35 percent to 70,278.
Given the challenges it faces in China, the automaker must move fast to assemble new products, especially Jeeps, locally to reverse the sales slump and counter steep duties.
To comply with Chinese rules on fuel economy and green vehicle production, it needs to introduce electrified vehicles ahead of the schedule it released this year, namely the rollout of four plug-in hybrids and four EVs over the next five years in the market.
It must also work hard to improve product quality to rebuild the images of its storied brands in the eyes of Chinese consumers.
All these tasks require Manley¡¯s immediate attention and quick action.
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