Analysis: Fiat's future in China

Gasgoo.com (Shanghai) - Following a four year absence, Fiat has finally decided to reenter the Chinese market. During that time, Chinese automobile production and sales numbers have doubled. Fiat, for its part, strategically allied itself with Detroit Big Three manufacturer Chrysler three years ago. With the aid of its partner, Fiat aims to manufacture and sell six million vehicles by 2014.

Fiat's Chinese joint venture with Guangzhou Automobile Group has made significant progress, with news last month that construction work on its jointly-owned factory in Changsha, Hunan has been completed. Production of its first vehicle, the Fiat Viaggio, has already begun. The Viaggio is scheduled to make its market debut in September. The JV has plans to release at least one new model a year. However, it remains to be seen how Fiat will do following its late entry into the increasingly competitive Chinese market.

In order to further analyze Fiat's prospects in China this time around, Gasgoo.com (Chinese) conducted a week-long survey earlier this month, inviting 1,023 industry analysts and experts to participate.

In the first question, participants were asked bluntly how they felt Fiat would perform in China this time. The majority, 52 percent, responded that they held low prospects for the manufacturer. Only 27 percent said they were optimistic, while 21 percent were undecided.

Fiat's success in the Chinese market is heavily dependent on a few key factors, among them are the competitiveness of its own brand and its understanding of the Chinese market. In its last foray in China, Fiat brought over models based on outdated platform technology. By failing to fulfill consumer expectations, Fiat was quickly forced out of the country. In doing so, the manufacturer missed a golden opportunity to capitalize on the breakneck growth speed the market experienced over the past two years.

In that time, China surpassed the US to become the world's largest market. Although that episode of double digit growth has since past, there still exists a great deal of room for the market to expand. It is now near impossible for a global manufacturer to write off China as an optional secondary market. Furthermore, Fiat, like other manufacturers, has had to deal with the brunt of the recent eurozone credit crisis, which has seen European sales decrease dramatically.

Fiat has gotten off to a good start by picking GAC Group. GAC is the country's sixth largest automobile manufacturer and possesses successful joint venture experiences with Toyota and Honda. Furthermore, this time the manufacturer is committed to producing its most technologically advanced vehicles in China. The Viaggio, which is based on Fiat Chrysler's new CUSW platform, is a prime example of this. In a nod to regional market tastes, the Viaggio also boasts considerable interior space. Fiat has also announced that it will manufacture vehicles from the Alfa-Romeo and Jeep brands in the country, the latter of which has its fair share of Chinese fans.

Fiat CEO Sergio Marchionne has even gone as far as admitting its past mistakes in the Chinese market, saying that the manufacturer is undergoing rapid change. However, the manufacturer has many challenges to overcome as growth slows down in the increasingly competitive Chinese automobile market.

When asked what new (or in Fiat's case, returning) entrants should pay most attention to in order to succeed in today's Chinese market, participants' responses were mixed. The most common pieces of advice (receiving 26 percent of participants' votes each) were for new manufacturers to make detailed plans on how to compete in individual segments and to remain flexible to new ideas and challenges in an ever-changing market.

Chinese consumer standards have increased in suit with the expanding scope of the market. Individual segments which once only had a few models now have a wide selection of choice from several different manufacturers. Therefore, it's now more important than ever for new entrants to make stable plans for products they wish to bring over. Furthermore, with the market as competitive as it is, it is very difficult for a manufacturer to succeed by relying on just one or two outstanding products. All that said, the market is still evolving, so there are a lot of opportunities that inventive and quick manufacturers can capitalize on.

Another 25 percent of participants believe that the most crucial thing a manufacturer can do is improve their brand image. J.D. Power and Associates predicts that there will be over 90 different brands in the Chinese passenger automobile market by 2015, far more than in developed markets. The predicted number is over double the amount of passenger automobile manufacturers currently operating in the US. Additionally, the majority of potential Chinese consumers are first-time buyers, further demonstrating the importance of possessing a strong brand image.

The remaining 19 percent answered that undergoing large domestic research is the key to succeeding in the Chinese market. Multinational manufacturers have gone from just producing and selling vehicles in the country to actually designing new models in China specifically targeted at Chinese consumers. In order to succeed in China, it is crucial for new entrants to specifically research and understand the intricacies of the market. Over the last two years, a few Japanese manufacturers saw their market share decrease specifically because they did not respond to regional market and consumer demands in time. In response, these manufacturers have all announced new projects aimed at increasing the degree of product localization.

In the final question, participants were asked about what sort of prospects they held for the Fiat Viaggio in China. The majority, 69 percent, are pessimistic, saying that the Chinese compact market is oversaturated as it is, and that a new model would have a hard time making an impact. Only 17 percent believe the Viaggio was capable of shaking up the market, while the remaining 14 percent were undecided.

Because of their affordability and relatively ample interior space, large compact and midsize sedans are the car of choice for most Chinese households. As a result, the sedan segment remains the largest in China's passenger automobile market. In 2011, around 5.3 million large compacts and midsizes were sold, with the majority, 72 percent, coming from Sino-foreign joint ventures. There are currently over 40 such vehicles in China currently, covering price ranges from 90,000 yuan to 130,000 yuan ($14,095-$20,360). Just under 20 of those manage yearly sales of over 100,000 units. For Fiat to succeed in this extremely competitive market without offering any significant advantages in terms of either brand image or customer service is a lofty proposition.

That said, the Viaggio is still a sublimely designed and engineered car. If priced correctly, it could easily attract many buyers in the country. Furthermore, various reports rate Fiat's management process, cost control and sales management as above average. What remains to be seen is if the manufacturer's marketing strategy works in showcasing the manufacturer and the car's strengths.