Fiat SpA F.MI -2.09% will show its first car made with a local Chinese partner on Monday at the Beijing International Automotive Exhibition, a belated attempt to catch rivals that are well established in China, the world's biggest car market.
The Italian auto maker and its partner, Guangzhou Automobile Group Co., 2238.HK +1.10% are releasing a midsize sedan designed to cater to the Chinese preference for bigger cars.
Called the Viaggio, it is the first result of their €400 million ($528 million) joint venture, formed in 2009 after Fiat fell out with two previous partners in its long struggle to gain traction in China. Built on the same Alfa Romeo platform as majority-owned Chrysler Group LLC's Dodge Dart, the car will go on sale in the third quarter.
Fiat has so far been importing a few of its models into China, including the 500 city car and Bravo hatchback. Including all of Fiat brands sold in China including Ferrari, its sales totaled 35,448 vehicles in 2011, not even 1% of the market, according to IHS Global Insight.
"They're pretty much the only ones at this time who aren't present" [in the market], said Klaus Paur, an Ipsos analyst in Shanghai.
The paltry numbers highlight the importance of setting up a factory in the country, where competition is growing fierce as the mass market is slowing down. After surging by 33% in 2010, passenger vehicle sales rose just 5.2% last year to more than 14 million units, before falling 1.3% in the first quarter of 2012. When including commercial vehicles, sales for 2011 reached 18.51 million units, according to the China Association of Automobile Manufacturers, an industry group.
By comparison, Volkswagen AG, VOW.XE -2.08% which has two local partners and 11 plants, sold 2.3 million commercial and passenger vehicles last year, giving it a leading market share of about 13%, IHS Global Insight data show.
Jack Cheng, vice president of Fiat in China, acknowledged the difficulties he faced. "We're looking now at a big challenge to come into this market at this time...[there is] fierce competition," he said in a phone interview.
The road ahead may be long for Fiat, but it's one that can't be ignored, according to Kristina Church, an analyst at Barclays Capital in London. "It's a market that you can't not be there."
But Michael Dunne, president of consultancy firm Dunne & Co., said China was so big that there was still room for everyone--even late-comers. "Fiat should go for it," he told reporters at an industry event earlier this year in Milan.
Despite the weak first quarter, the Chinese association has yet to downgrade its 2012 sales growth forecast of between 8% and 10% for commercial and passenger vehicles.
Ms. Church describes China as the third pillar of the automotive industry after the U.S. and Europe.
It is also the strongest pillar, given how the U.S. market is recovering from a major slump and Europe is still traumatized by the sovereign debt crisis.
Fiat has been one of the hardest hit in Europe, where it has been taken losses for years, making it reliant on its dominant position in Brazil and Chrysler in the U.S. to make money.
In China, Fiat's rivals might have a big lead on it, but they aren't staying idle.
Volkswagen plans to invest €14 billion in new plants and products in China by 2016. Honda Motor Co. 7267.TO -1.04% wants to double sales by 2015 by bringing out more than 10 new and redesigned vehicles. And Ford Motor Co. F -2.14% intends to spend $5 billion to build a fifth factory to double production capacity and sales by 2015.
Fiat's ambitious are far more modest.
At its April 4 annual shareholders meeting, Fiat Chief Executive Sergio Marchionne said the plant in Changsha in the province of Hunan where the Viaggio will be built will start with a capacity of 170,000 units a year with the option to expanding it to 300000
Mr. Marchionne's goal is to reach combined annual sales of 300,000 vehicles by 2014 with Chrysler, which itself plans to bring its Jeep brand to the country.
