BEIJING (Bloomberg) – Fiat, with two failed partnerships in China, has returned to manufacturing cars in the world's largest vehicle market as the Italian automaker plays catch-up amid a slump in European demand.
The carmaker on Thursday began producing the Viaggio compact sedan with joint venture partner Guangzhou Automobile Group at their new factory in Changsha in central China.
Fiat has to produce in China in order to avoid the 25 percent import duty in the world's second-largest economy and be competitive with other brands.
In Europe the Italian carmaker will cut investments by 500 million euros ($621 million) as consumer confidence slumped to a 15-year low last month in its home market.
"We are showing up too late," Fiat CEO Sergio Marchionne said in a briefing at the plant. "We have a lot of work to do."
Jeeps for China
Fiat will manufacture some Jeep models in China, Marchionne said, without providing more details.
The Changsha plant can be expanded to produce about 400,000 units a year, from the current 140,000, he said, without giving a timeframe.
The automaker is targeting to boost annual sales of locally built cars to 200,000 in 2014, Jack Cheng, general manager of GAC Fiat Automobile, said in an interview in April.
The Italian brand delivered just 991 vehicles in China in 2011, compared with 2.55 million vehicles sold by General Motors, the biggest foreign automaker in the country, and 2.26 million by Volkswagen.
Guangzhou Auto, based in the southern Guangdong province that borders Hong Kong, is Fiat's third Chinese partner. Fiat terminated its venture with Nanjing Automobile Group Corp. after its 2007 merger with SAIC Motor Corp.
The Italian carmaker then had a partnership with Chery Automobile., which fell apart after two years.
"Fiat wouldn't choose to start production in China at such a late time if they had a choice," said Han Weiqi, a Shanghai-based analyst with CSC International Holdings. "Fiat's brand recognition in China is far behind the market leaders such as Volkswagen, GM and Toyota, and they will need to compete on value-for-money."