The joint venture between Stellantis and Guangzhou Automobile Group Co (GAC) that makes Jeeps in China will file for bankruptcy, the companies said on Monday. This comes after a long decline for the oldest foreign auto brand in the world’s largest market.
Stellantis said in a statement that its results for the first half of 2022 showed that it had lost all of the value of the money it had put into the joint venture. It also said that Jeep customers in China would still get service.
GAC, which agreed to the bankruptcy filing, said that the joint venture’s debts were worth almost 111% of its assets, which were worth $1.0 billion. In a filing with the stock exchange, GAC said that bankruptcy would not have a major effect on its business.
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Stellantis and GAC ended their partnership in July, just a few months after Stellantis said it would increase its share of the business from 50% to 75%.
In the days that followed, GAC criticised Stellantis and said it was “deeply shocked” by what the European carmaker said about the end of their joint venture in China.
The business, which sells the Jeep Cherokee SUV and the Compass crossover, has seen its sales drop sharply over the last four years. Sales dropped by 50% from the year before, to 20,396 cars in 2021.
Less than 2,000 cars were sold in 2022. In May, they said that they had only sold one car.
Sharp’s (OTC: SHCAY) Jeep decline in China: http://graphics.reuters.com/STELANNTIS-GAC/klvygemlovg/chart.png
Carlos Tavares, the CEO of Stellantis, said in July when he talked about the company’s financial results that over the last five years, “the political influence” in doing business with its partners in China had grown. He said at the time that he didn’t think the company’s choice to end the joint venture would have a big effect in the long run.
Earlier this month, Tavares said that when Chinese automakers send cars to Europe, they should have to pay the same tariffs as when European brands send cars to China.
As a group, foreign automakers are facing more and more trouble in China, where the market has quickly moved toward battery-electric cars and where domestic brands are taking market share.
According to the China Passenger Car Association, foreign automakers’ share of China’s auto market, which is now the largest in the world, fell by 5.5 percentage points to 45.6% last year.
Chee-Kiang Lim, managing director China at the Detroit-based consulting firm Urban Science, said that China’s requirement that foreign automakers invest in joint ventures is in danger.
“The original goal of the joint-venture policy was to force foreign brands to share their brands and technology with Chinese automakers in exchange for access to China’s large and growing auto market,” he said.
He said that now that Chinese automakers are more “confident that they have closed the gaps with or even surpassed their foreign partners,” he said, “we have to expect more JVs to end in the coming years.”
The bankruptcy of the Jeep venture is just the latest event in a rocky history for the first foreign brands to invest in China, back when it was almost unheard of as a market for automakers from around the world.
In 1984, the old AMC put money into a Beijing Jeep joint venture. This was the first time an American brand did something like this to make cars in China.
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After AMC was bought by Chrysler and then Chrysler was bought by Fiat, which merged with Peugeot in 2021 to become Stellantis, there were changes in who owned the business (OTC:PUGOY).
Tesla (NASDAQ:TSLA) is the only automaker in the world that got permission to make cars in China without forming a joint venture.
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