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Chrysler’s move in China full of riddles

Two months after being appointed the new head of Chrysler Asia Operations, Phil Murtaugh declared his strategy of revitalizing Chrysler in China in an interview in the Economic Observer as, “If a carmaker wants to expand in the Chinese market, selling imported vehicles alone is far from enough … You have to strengthen localization.”
 
Chrysler organized a “luxury” decision-making team immediately after divorcing Daimler and going private. However, the No.3 U.S. automaker has been quite cautious regarding adjustments in its Chinese business. So far, strategies for partnership, production and sales network are still in the making.
 
For the new Chrysler, wise decisions are precious for the transition period. As the new chairman and CEO of its Asia operations, Murtaugh will be in charge of a series of important missions.
 
Venturing riddle
To increase localization in China, a multinational must choose a right local partner.
 
Chrysler now has three production bases in China. Beijing Benz-DaimlerChrysler Automotive Co., Ltd. (BBDC), a venture between Beijing Automobile Industry (Group) Corp. (BAIC) and the former DaimlerChrysler AG, manufactures Jeep, Chrysler 300C and Sebring. Southeast (Fujian) Motor Co., Ltd. (Southeast) produces the Dodge MPVs and other Chrysler brands as per their contractual production agreement. Moreover, Chrysler has signed a contract to manufacture small-displacement cars with Chery.
 
BBDC is Chrysler’s first joint venture with a Chinese company, the Beijing Jeep Co., Ltd., and its major business unit in China. In the wake of the DaimlerChrysler separation, BBDC is also awaiting the equity restructuring. This has posed a challenge for Murtaugh, who is charged with maintaining the existing local relationships as well as protecting Chrysler’s independent interests.
 
“There are several plans for BBDC’s separation, but I cannot say which one will be adopted in the end,” said Murtaugh.
 
Ulf Ausprung, general manager of Chrysler Group (China) Sales Ltd., told the Guangzhou Daily that BBDC will probably maintain the current structure, not to let Chrysler seek absolute independence.
 
An industry analyst told CBU/CAR that Chrysler and Daimler had been operating separately in China because they did not have many similarities in products, platforms and sourcing systems. “BBDC’s restructuring will not affect Chrysler’s Chinese business substantially.”
 
According to the Chinese government’s policies for the automobile industry, a foreign carmaker is allowed to have two joint ventures in the country. But, at present, it is a lot more difficult to get the official approval as the government is concerned about the potential risks of overcapacity in China’s auto industry.

“Ten years ago, a venture agreement could be signed by just dining twice,” said Murtaugh. “But now, the situation is totally different.”
 
Southeast is now a 20.75:29.25:50 car joint venture between Yulon Motor (Taiwan) Co., Ltd., Mitsubishi Motors Corp. and Fujian Motor Industry Group Corp. In 2006, Southeast got licensed to produce Chrysler’s MPVs, among which the locally produced Grand Voyager hit the market in September and the Dodge Caravan rolled off the assembly line this month.
 
Murtaugh disclosed in the interview that he would soon talk with the executives of Fujian Motor about further cooperation between the two companies, and he did not rule out the possibility of establishing a joint venture with Southeast.
 
As for Chery, Murtaugh told reporters that Chrysler and Chery have decided to carry out their contract sooner rather than later. “We have not decided when to start producing yet, but it cannot be too late.”
 
In July, Chrysler signed an agreement of commissioned production of economy cars of the Dodge brand with Chery. According to the contract, Chery will export the cars to the European and American markets. And those models will not be launched in China, said Murtaugh.
 
Tom Losorda, Chrysler Group’s former president and CEO said that Chrysler and Chery are likely to have more collaboration in the future. However, Murtaugh said that any further moves would need more negotiations.
 
Model riddle
Although Chrysler’s three wholly owned brands have entirely different characteristics, their models all belong to the middle to luxury level in China. Lack of economy models has had a debilitating effect on Chrysler’s Asia operations and the group in general.
 
Currently, Chinese consumers’ purchasing power is still limited. In contrast, all of the locally produced models of Chrysler are in or above the medium level. Economy cars, which are more popular in China, have been deficient in Chrysler’s lineup. This is partly the reason why Chrysler could not make a breakthrough in sales in the world’s second-largest auto market.
 
In the interview, Murtaugh proposed three plans for Chrysler’s economy car project. “We can introduce models from other companies like what GM has done with GM-Daewoo, or directly buy the useful technology, or cooperate with companies owning such technologies,” said Murtaugh. “We are trying to find the most suitable way for Chrysler.”
 
An industry analyst said it will be difficult for Chrysler to develop economy cars in China no matter what method it adopts. “Compared with all other methods, technical cooperation is the most feasible one for Chrysler and it may form a closer tie with Chery or Southeast, based on current collaborations.”
 
Marketing riddle
As one of the few auto giants that entered China early, Chrysler has not fared as well as it did in the European market. As a brand, the Jeep has had a history of 23 years in China but only appealed to a small group of people. Chrysler 300C, the flagship model of Chrysler in China, only posted a sale of 7,000 units in the first three quarters of 2007. As brands, Chrysler and Dodge are both new for the Chinese consumers. It is tough to build brand recognition.
 
Chrysler’s sales network, after separating with Daimler, will also need urgent improvement. Due to its delicate position in BBDC, Chrysler has no say in building the sales network. It has to follow Benz most of the time.
 
In the interview, Ausprung said Chrysler and Southeast are now closely collaborating in the sales of Dodge models and plan to set up 40 dealerships by the end of the year. “This sales network is built by both companies and dominated by Southeast,” he said.
 
Some insiders stated that it was an act of comprise by Chrysler to co-build network and share profits with Southeast, as the U.S. automaker was eager to get a firm foothold in the Chinese market.
 
For the current network catering to a single brand, selling vehicles of three different brands is a big challenge.
 
Chrysler has witnessed a series of revolutionary changes in the last months. Its new management team, including Robert Nardelli, James Prius and Murtaugh, needs a period of time to get familiar with their new roles in the private automobile enterprise. In fact, they are making every effort to prevail in China and make Chrysler a truly multinational company.

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