Great Wall’s pursuit of Jeep could raise many issues

All parties — Chinese and American — are acutely aware of the political atmosphere right now.” Michael Dunne, founder, Dunne Automotive

If China’s SUV maker Great Wall Motor Co Ltd were to purchase Fiat Chrysler Automobiles’ Jeep unit, it could face potential financial, managerial and political issues that could be mitigated in part by a minority stake acquisition, analysts said.

Automotive News reported Monday that Great Wall President Wang Fengying wrote in an email to the industry publication that the company intends to buy Jeep and is “connecting with FCA (Fiat Chrysler Automobiles)” to begin negotiations. Later FCA issued a statement stating it “has not been approached by Great Wall.”

Robin Zhu, auto industry analyst with Sanford C. Bernstein in Hong Kong, wrote in a research note that “even if Great Wall could find the funds necessary to buy Jeep in a cash deal, and even if FCA would sell, it arguably remains open to question whether Great Wall would have the experience or expertise to operate Jeep, or find a worthy successor to (FCA CEO Sergio) Marchionne.”

Great Wall Motor, an independent Chinese automaker, is headquartered in Baoding in Hebei province, and like Jeep in the US, is a major sport utility vehicle (SUV) manufacturer in the Chinese mainland. The company sold 938,000 SUVs in 2016, seizing 10.4 percent of the Chinese SUV market and retaining its No. 1 position for 14 consecutive years.

In the US, Jeep sold about 926,000 SUVs in 2016 and has recorded sales of 475,000 through July of this year. It sold 1.42 million SUVs worldwide last year, while Great Wall delivered 938,000 units.

Fiat Chrysler has been producing Jeep SUVs in China with its partner GAC Group since 2015, including the Cherokee and Compass models. The 50-50 joint venture employs around 6,000 people.

FCA owns the Chrysler, Dodge, Ram and Jeep vehicles, as well as the Fiat, Alfa Romeo and Maserati brands in Europe. Morgan Stanley analyst Adam Jonas said in a note to analysts last month that Jeep is worth more than Fiat Chrysler as a whole, which is valued at about $19 billion.

Marchionne has hinted in the past that he might be interested in a sale of all or part of FCA.

Zhu said Fiat Chrysler “would look very weak and probably unsellable” without Jeep and also wondered about the current political climate in the US: “Would the US sanction a deal, given the Trump administration just launched its investigation into China’s IP (intellectual property) practices?

“For FCA’s part, we wonder if these plans are part of a strategy to tease out Detroit — and Washington — support for an America First solution to the FCA problem. The last thing Ford and GM (General Motors) would want is a Chinese-owned Jeep in Detroit. Marchionne will know this — perhaps Washington will now realize this too,” Zhu and his team said in the note.

Great Wall or other Chinese auto companies could skirt the political issues by acquiring a minority stake, automotive analyst Michael Dunne told the Detroit Free Press.

“I believe that all parties — Chinese and American — are acutely aware of the political atmosphere right now. I would watch for a nuanced or slightly gradual approach,” said Dunne, founder of Dunne Automotive.

Yale Zhang, managing director of Shanghai-based consulting firm Automotive Foresight, said Jeep would benefit Great Wall in terms of products and sales.

“If successfully completed, the takeover will enrich Great Wall’s portfolio and it will instantly realize the dream of Wei Jianjun, chairman of Great Wall, to make it the largest SUV maker worldwide.”

Patrick Yuan, an equity analyst at Jefferies Hong Kong, said the takeover of Jeep would help to improve the outlook for Great Wall’s long-term development.

“The company seems not to be acquiring too much know-how compared with global OEMs who are introducing more SUVs to the China market,’’ he said. “By acquiring FCA (Jeep), technical support is expected, while long-term sustainability is more visible.”