End of Jeep’s China JV May Be Prelude For Others

IT HAS BEEN a long and winding road for Jeep in China, as the song has it, which has now ended in the bankruptcy filing of the joint venture (JV) between Guangzhou Automobile Group (GAC) and Stellantis.

The former AMC was the first US automaker to have a production JV in China, setting up Beijing Jeep joint venture in 1984. A succession of ownership changes followed: Chrysler acquired AMC; then Fiat bought Chrysler to create Fiat Chrysler, which became Stellantis after a merger with Peugeot and Citroen maker PSA in 2021.

However, with sales declining and having missed the switch to electric vehicles by Chinese consumers, Stellantis announced in July that it would end the JV.

At the time, its chief executive, Carlos Tavares, cited the growing ‘political influence’ in doing business with partners in China and indicated that the group would switch from local production to importing.

Some commentators seized on this as evidence of ‘decoupling’ in the face of deteriorating US-China relations and an example of a foreign multinational lightening its footprint n China. However, to this Bystander, Setllantis’s case seems sui generis.

Jeep’s sales in China fell to barely 20,000 vehicles in 2021, half the previous year’s total and one-tenth of 2017’s number. The decline has continued this year, with fewer than 2,000 vehicles sold.

Elon Musk’s EV maker Tesla is the only foreign automaker that has not been required to produce in China through a JV. That is a sign of the growing confidence of the domestic industry that it no longer needs foreign technology and expertise as it once did. That is especially true for EVs, which now account for between one-fifth and one-quarter of new car sales in China.

Last year, foreign automakers’ share of the Chinese car market overall, the world’s largest, fell to 45.6% in 2020, a 6.9% decline from 2020, according to China Passenger Car Association.

That is two-thirds of its peak and falling. Trade estimates put foreign carmakers’ EV market share at around 20%.

If those trajectories continue, more foreign auto JVs will follow Jeep in folding.

Turning the lights out at Wuxi SunTech

We noted last year how China was looking to provide a helping hand to its struggling solar panel industry by getting local governments to push projects using solar power. Beijing approved $1 billion in subsidies for 100 such projects last November. Now stick is following carrot. It is letting Wuxi Suntech, the main operating subsidiary of Wuxi-based Suntech Power Holdings, the country’s leading solar panel maker, slip into bankruptcy.

A group of eight Chinese banks, including some state heavyweights–Commercial Bank of China, Agricultural Bank of China and Bank of China–has initiated insolvency proceedings in a Wuxi court against the subsidiary (though not the NYSE-listed parent). This follows last week’s default by SunTech on $541 million of its bonds. If the bankruptcy petition goes  ahead as expected–Wuxi Suntech has told the court it will not file an objection to undergoing a court insolvency reorganization–it would represent the biggest corporate collapse in China in recent times, and provide a test of the country’s new bankruptcy law.

Yet more significant to this Bystander is the clear unwillingness of its lenders to keep propping up a loss-maker–SunTech owes the eight banks 7 billion yuan ($1 billion)–and particularly one as prominent as Suntech in an industry designated of national strategic importance. It also sends a signal to other Chinese solar panel makers to get their businesses in order as they struggle with global overcapacity, falling subsidies and international trade disputes–or they, too, will be allowed to go the same way as Suntech and many of its European competitors.

Then what is left of a culled industry will be consolidated into a few viable state champions.