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Fiat draws interest in Jeep from Chinese rival amid asset review

A worker walks past Haval SUV models parked outside the Great Wall Motors assembly plant in Baoding in north China’s Hebei province. Chinese SUV maker Great Wall Motors is considering making a bid to acquire Fiat Chrysler’s Jeep unit. (Associated Press)
Bloomberg

Fiat Chrysler Automobiles NV’s fast-growing Jeep division has elicited takeover interest from a Chinese rival, the latest sign that the Italian-American company’s businesses may be up for grabs just as Asian carmakers hunt for European and U.S. assets.

Great Wall Motor, China’s biggest SUV maker, is interested in buying Jeep and will continue to monitor the situation, said a spokesman for the Baoding-based automaker. Fiat said there’s been no approach from Great Wall on Jeep “or any other matter relating to its business.”

The comments from the Chinese company, which pushed Fiat shares up to a record in Milan trading, come amid deal speculation as the manufacturer reviews its strategy amid pressure to compete with larger automotive groups. Still, a sale of Jeep on its own is unlikely.

The offroad brand anchors the Italian-American company’s mass-market car business, and carving out the unit would leave a gaping hole alongside the Dodge, Chrysler and Fiat nameplates. Reflecting the brand’s importance, Morgan Stanley estimates Jeep is worth $24 billion, about $4.7 billion more than the entire group’s market value.

“We are not wholly surprised that Great Wall is targeting what is arguably the strongest brand in FCA’s portfolio with little interest in the ‘other stuff’,” Arndt Ellinghorst, a London-based analyst with Evercore, said in a note. But valuation would be an issue, and Fiat’s improving financial position “would enable the company to seek out a better price for any or all of its parts.”

Fiat Chrysler Chief Executive Officer Sergio Marchionne stoked the speculation last month when he said the automaker will evaluate whether to spin off some of its businesses. Jeep, though, has been a key focus of expansion, with plans to boost sales to 2 million vehicles by 2018. Marchionne is pushing the company to eliminate debt by the end of next year to position it better for future deal-making.

Fiat shares gained as much as 4.9 percent to an all-time high of 11.22 euros and were trading at 11.05 euros as of 12:24 p.m in Milan, valuing the company at 16.5 billion euros. Shares of Great Wall rose 1.6 percent in Hong Kong trading.

There are complications to a potential deal with Great Wall. Fiat Chrysler manufactures Jeeps in China with rival Guangzhou Automobile Group Co. The partner has said it doesn’t have plans at present to buy the SUV brand.

Acquiring Jeep could fast track plans by Great Wall Chairman Wei Jianjun to steer the SUV maker to sell pricier and more profitable models, recently introducing a new premium brand named WEY. A deal for Jeep would put Great Wall on a similar path as Zhejiang Geely Holding Group Co., which bought Sweden’s Volvo Cars and recently sealed a majority stake purchase of the owner of Lotus, the British sports-car brand.

Building a full-fledged luxury marque would take years with no promise of success, while Jeep offers instant name recognition and a global presence. Models like 209,800-yuan ($31,400) Jeep Cherokee would also catapult Great Wall into the lucrative high-end segment. By contrast, Great Wall’s 88,800-yuan H6 competes in a crowded field with offerings such as Geely’s Boyue, Guangzhou Auto’s Trumpchi GS4 and Chongqing Changan Automobile’s CS75.

While buying Jeep would give Great Wall a boost in branding, it would also “face big challenges in the near future as the government tightens up requirements on emissions and oil consumption, just like Hummer, which was undermined by the U.S. emission rules years ago,” said John Zeng, LMC’s Shanghai-based managing director.

Chinese regulators in 2010 blocked the acquisition of General Motors Co.’s gas-guzzling Hummer brand by Sichuan Tengzhong Heavy Industrial Machinery Co., saying the company didn’t provide a reasonable purchase plan.

Chairman Wei has warned of rising competition in the entry-level SUV segment. The company is rolling out the WEY nameplate at a time when sales of its flagship Haval H6 model, which accounts for half of its total deliveries, declined 5.5 percent to 263,872 units in the first seven months of this year. Automotive News earlier reported Great Wall’s interest in Jeep.