Jeeps Sell for $189,750 as China Demand Offsets Import Tax
Keith Bedford/Bloomberg
A Chrysler Group LLC Jeep sport utility vehicle (SUV) sits parked under red lanterns in Beijing, China.
A Chrysler Group LLC Jeep sport utility vehicle (SUV) sits parked under red lanterns in Beijing, China. Photographer: Keith Bedford/Bloomberg
April 12 (Bloomberg) — The 2012 Jeep Grand Cherokee SRT8 4×4 sport-utility vehicle is seen in a promotional video from Chrysler Group LLC.
The vehicle features a 6.4-liter Hemi V-8 engine with 470 horsepower and 465 pound-feet of torque. (Video courtesy of Chrysler Group. Source: Bloomberg)
Jeeps Sell for $189,750 as China Demand Offsets Import Tax
Feng Li/Getty Images
The Jeep Wrangler vehicle is seen during the 2012 Beijing International Automotive Exhibition at China International Exhibition Center in Beijing, China, on April 25, 2012.
The Jeep Wrangler vehicle is seen during the 2012 Beijing International Automotive Exhibition at China International Exhibition Center in Beijing, China, on April 25, 2012. Photographer: Feng Li/Getty Images
The Jeep store in south Beijing near
the Timberland and London Fog outlets carries the season’s
latest offerings of branded shirts, shoes, belts and backpacks.
Not for sale here: Jeep sport-utility vehicles.
Jeep gear is so popular in China that there are more than
1,500 licensed clothing outlets in the country, where only 120
auto dealers sell the brand. While Jeep has a strong image
connected to an adventurous lifestyle, three decades of changing
ownership have left it without local production and missing out
on surging demand for SUVs in the world’s largest vehicle
market.
“Our brand awareness and consideration is running way
ahead of where our actual volumes are,” Mike Manley, head of
the Jeep brand, said in an interview in Beijing last month.
“That’s why I can’t say strongly or often enough just what an
opportunity China offers for us.”
Jeep sales rose 63 percent last year to 19,013 — less than
three days worth of China sales for General Motors Co. (GM), the top
foreign automaker in the market. Detroit-based GM has 2,900
dealers — more than 24 times the Jeep number — that sold 2.55
million vehicles last year, mostly Buick, Chevrolet and Wuling
models.
Manley, who oversees Asian business for Jeep owner Chrysler
Group LLC, said he wants to increase the brand’s sales in China
by expanding Chrysler’s dealer network by as much as 29 percent
this year and restarting local production by early 2014.
While Ford Motor Co. (F), a late entry to China, is working
just to build awareness of its brand and products, Jeep
struggles to meet runaway demand.
Well-Known Brand
“It’s not that the brand isn’t known; it’s known,” said
Bill Russo, a former China chief for Chrysler. “It’s not that
people don’t have a positive impression; they do. It’s just that
they can’t get it. They can’t get what’s available around the
world here in China, not at anywhere near the price point that
you get anywhere else in the world.”
The Jeep brand’s first steps into China as a consumer brand
seemed promising in the early 1980s, when military versions of
the off-road vehicle were widely recognized.
“It’s amusing to think that when Jeeps were first produced
in China, there were few cars on the streets, only three ring
roads in Beijing and no freeways from city to city,” Jim Mann,
an author-in-residence at Johns Hopkins School of Advanced
International Studies in Washington D.C., said in an e-mail.
“The enterprise has had a series of problems, but survives,
like a cat with nine lives.”
Wrote the Book
Mann wrote a 1989 book called “Beijing Jeep” that
detailed the challenges then-owner American Motors Corp. faced
in setting up the first U.S. auto-manufacturing partnership in
China in the early 1980s. Those challenges were immense, from
cultural misunderstandings with then-partner Beijing Automotive
Works to the changing ownership of American Motors when
purchased by Chrysler Corp. in 1987.
Chrysler itself merged with Daimler-Benz AG in 1998 before
the U.S. unit, based in Auburn Hills, Michigan, was sold to
Cerberus Capital Management LP in 2006.
By the time Turin, Italy-based Fiat SpA (F) took control of
Chrysler and its Jeep brand in 2009 as part of the U.S.
automaker’s government-backed bankruptcy reorganization, Jeep’s
original manufacturing partner had become Mercedes’s partner.
Jeep output in China stopped in 2006.
Lacked Investment
“Chrysler had so many challenges in dealing with the
change of ownership that they really couldn’t put the investment
and the attention into building up any joint venture in China,”
said Russo, the former Chrysler executive, who now is president
of auto consultancy Synergistics Inc. “They really scaled back
to focus on the crisis back home. Now that the boat is afloat,
so to speak, everywhere else, you’ve got to sail it back to
China.”
Without an assembly partner, Chrysler has been looking for
one in China as required to avoid steep tariffs. Manley also
runs Asian operations for Fiat, Chrysler Group’s majority owner.
Fiat’s partner, Guangzhou Automobile Group, would be a natural
and officials with that company have said they want to build
Jeeps.
“Of the options that are out there, which is the easiest
to get to? Probably with Fiat’s joint-venture partner, mainly
because there’s already a good relationship,” Manley said.
Still, he said, there are a number of options for Chrysler in
China. “I certainly have got the teams involved in it focused
on coming up with the right solution for us by the end of the
first half and I like to think we can do that,” Manley said.
It will probably take at least 18 months to begin
production after deciding on a partner and receiving government
approvals, he said.
Higher Prices
In the meantime, he watches as imported Jeeps continue to
see sales growth even though the duties push up prices. The Jeep
Grand Cherokee starts at 575,900 yuan, or $91,064. In the U.S.,
it starts at $26,995, according to company websites. The 2012
Grand Cherokee SRT8 version costs at least 1.2 million yuan, or
$189,750, compared with $54,470 in the U.S., according to
Edmunds.com.
“Jeep is an asset to Chrysler that could really have a lot
of upside,” Russo said. “But they now need to localize these
cars. Every competitor is localizing SUVs.”
Deliveries of SUVs will probably increase 16 percent this
year to 1.85 million units, the fastest-growing segment of
China’s automobile industry, according to the latest forecasts
from the state-backed China Association of Automobile
Manufacturers. The category grew 20 percent last year, according
to CAAM.
Chrysler’s limited product range also makes it harder for
the company to expand its dealer network, said Russo, who is
based in Beijing.
“This is why Ford is now investing pretty heavily to
introduce, I think, 15 models between now and 2015,” he said.
“To get your dealers to invest, they have to see an exciting
range of products that they can sell in reasonable volume.”
‘Safe, Rugged Car’
In the stand-alone Jeep clothing store, the walls are
decorated with black-and-white photos of military jeeps as well
as modern-day Wranglers. The brand’s ruggedness image led Ding
Qi, a Shanghai businessman, to buy his wife a Jeep Grand
Cherokee in 2004.
“I wanted to buy her a safe, rugged car, not one of those
dainty subcompacts,” he said in an interview.
They use the SUV to go on drives with a local Jeep club.
This year, the club, which has 200 members, plans to take a 48-
day cross-country trek from Shanghai to Tibet to Nepal and back.
“A Jeep driver is one who doesn’t give up when faced with
adversity,” Ding said. “That’s the impression I get because
we’ve had to deal with floods, landslides closing off roads and
other obstacles, but the club members always pull together.”
‘Sense of Superiority’
Yang Yang, 35, replaced her 2004 Grand Cherokee with a
Volkswagen Tiguan this year because, she said, she thought the
newer Jeeps had become less rugged.
“You don’t really feel it driving in the city, but when
you get into the mountains or on a riverbed, you have this sense
of superiority and joy,” she said of her old Jeep. “It’s hard
to describe to people who don’t drive a Jeep and I’ve not had
the same feeling from other SUVs — not the Tiguan that I’m
driving now.”
The vehicle’s capabilities are so spectacular that
sometimes they draw a crowd, she recalled.
“I love the Jeep for its ruggedness,” she said. “I
remember one time we were going deep into the mountains in Anhui
province and the villagers from surrounding villages came out to
watch us.”
To contact the reporters on this story:
Tim Higgins in Southfield, Michigan, at
thiggins21@bloomberg.net.
To contact the editor responsible for this story:
Jamie Butters at jbutters@bloomberg.net
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