Stellantis still faces complex problems to revive China businesses

SHANGHAI -- When presenting Stellantis’ new long-term plan — “Dare Forward 2030”— this week, CEO Carlos Tavares laid out a two-pronged strategy to revive sales and restore profitability in China.

The blueprint, what the company is calling an asset-light business model with a renewed focus on Jeep and Maserati imports, is clear-eyed. But Stellantis still confronts two complex tasks to revive sales and profits at two joint ventures inherited from PSA Group and FCA.

It may have to shed more assets at the two partnerships — PSA’s joint venture with Dongfeng Motor Group, which produces cars for Peugeot and Citroen, and FCA’s joint venture with GAC, which builds Jeep models.

Dongfeng-PSA and GAC-FCA have already slashed production capacity. But the two joint partnerships must cut more capacity, or substantially hike sales and output, to reduce fixed costs given woefully low factory utilization rates that fell below 20 percent last year. 

Dongfeng-PSA has idled two of three plants in the central China city of Wuhan amid slumping sales and intensifying market competition. But it retains one factory in Wuhan and one in the southwest China city of Chengdu, which combined can build 660,000 vehicles annually at full capacity. 

In 2021, the joint venture only sold 100,567 vehicles.

GAC-FCA closed a plant in Guangzhou in the third quarter of 2021. Its remaining factory, in Changsha, can produce up to 164,000 vehicles and 488,000 engines a year. 

Last year, annual sales at GAC-FCA, which assembles four Jeep models, the Cherokee, Renegade and Compass, shrank to 20,123 from a peak of 202,700 in 2017.

The main reason behind GAC-FCA’s sales slump is competition. 

When the joint venture started output of the first three Jeep models -- Cherokee, Renegade and Compass in 2015, demand for crossovers in the Chinese market was still booming. 

But competition has heated up with nearly every brand, Chinese or foreign, expanding their product lineup with new crossovers. That was why local production of the Grand Commander in 2018 failed to meaningfully shore up sales at GAC-FCA.

In contrast to tumbling sales of four locally built Jeep models, demand for imported Jeep models such as the Wrangler and the Grand Cherokee remain healthy thanks to Jeep’s appeal among enthusiasts of off-road vehicles. 

“We will also put a strong emphasis on our iconic premium and luxury brands, as part of our refocus on the import business, which is highly profitable, both for Jeep and Maserati,” Tavares said Tuesday. 

Now that Stellantis has decided to double down on Jeep imports, maintaining unprofitable local production at GAC-FCA will make less business sense. 

Stellantis has reached an agreement to raise its stake in GAC-FCA to 75 percent from 50 percent, allowing Stellantis to move more decisively to fix problems with Jeep in China.

Stellantis has struggled to pull off a similar deal with Dongfeng. 

“We plan to set a business model for Peugeot and Citroen working with DFM -- Peugeot sales and marketing would be controlled by Stellantis, and Citroen sales and marketing would be controlled by DFM,” Tavares, commenting on the Dongfeng Motor partnership, said during Tuesday’s presentation. 

He seemed to imply that Dongfeng-PSA, Stellantis’ main joint venture in China, will remain a 50-50 partnership between Dongfeng and PSA in the future.

Such a shareholder structure, under which decisions must be discussed and co-signed by both sides, will inevitably affect the company’s efficiency in operation and slow turnaround efforts.