Summary
Is Chrysler’s Chery strategy the right one? Will investment pay-off?
Analysis
Chrysler’s alliance with Chery is not necessarily doomed to disaster.
Taking into consideration China’s market and its development for the last 10 years it could have been a good strategy, some 5 years ago.
The problem today is that trends show an ever growing dissatisfaction of local buyers with their domestic brands. And having a Chery stained Chrysler might not be the most suitable answer to achieving mass penetration in this quite complex market.
Also, besides the OEM sales leaders of all the time, VW, GM, PSA, other OEMs like FIAT have discovered that making small cars on their own in China is an expensive, risky and difficult task to achieve, and have therefore seek partnership with known locals like FAW or SAIC.
Back to the first thought, competition in the small vehicle segment is growing ever stronger. Margins here are at its lowest. And what is worse for small vehicles strategy, economic wealth in the area, especially in India and China, is shifting consumer preference towards roomier family vehicles.
The general trend in the Asian underdeveloped countries is going mid-size.
Still, price is still an issue. This translates in larger vehicles but at lower general sticker prices and with low content.
In China for example the number of vehicles sold with sun-roofs is significantly higher than those sold with an HVAC system.
Navigation and infotainment systems are unknown to the mass production market.
However, there is also a growing amount of very rich individuals.
China, Russia, India, all these countries are a possibility for those well positioned luxury vehicle manufacturers that have been smart enough not to loose focus on these countries.
Can Chrysler succeed in China? Taking into consideration that the CAPEX will be most on Chery’s side, t is good possible that the volumes to be sold could one day amortize investments both sides of the ocean.
Do small vehicles sales in China represent salvation for Chrysler? Certainly not, but a low cost (not low price!) well made and marketed small American-Chinese car could be a good product to be placed back in the US and Europe, where the first hand small vehicle markets are still strong.
