The venture between Stellantis (STLA.MI) and Guangzhou Automobile Group Co (GAC) producing Jeep vehicles in China will file for bankruptcy, the companies said on Monday, after a long decline for the oldest foreign auto brand in the world's largest market.
Stellantis said in a statement it had fully impaired the value of its investment in the joint venture in its results for the first half of 2022. It also said it would continue to provide service to Jeep customers in China.
GAC (601238.SS), which approved the bankruptcy filing, said the joint venture had liabilities of almost 111% of its assets of 7.3 billion yuan ($1.00 billion). The bankruptcy would not have a significant impact on GAC's operations, the Chinese company said in a stock exchange filing.
Stellantis terminated the venture with GAC in July, only months after it said it would raise its stake in the business to 75% from 50%.
In the following days, GAC criticised Stellantis and said it was "deeply shocked" by comments from the European carmaker about the end of their joint venture in China.
Sales for the venture, which sold the Jeep Cherokee SUV and the Compass crossover, have been in sharp decline for the past four years. Sales fell by 50% in 2021 from the previous year to 20,396 vehicles.
For 2022, it sold fewer than 2,000 vehicles. In May, it reported selling only a single vehicle.
Bill Russo, head of Shanghai-based consultancy Automobility Ltd and a former Chrysler executive, said the Jeep venture had failed to keep up with changes in the China market and to adapt to customer demands.
"It had every right to be successful in a market that embraced sport-utility vehicles," he said. "But you can't be running a 1980s business model when the 21st century has arrived."
While reporting financial results in July, Stellantis Chief Executive Officer Carlos Tavares said that over the last five years "the political influence" in doing business with its partners in China was growing. He said then he did not see a major long-term impact from the company's decision to break the joint venture.
Earlier this month, Tavares said Chinese automakers should be subject to the same tariffs when exporting cars to Europe as European brands face when exporting to China.
Foreign automakers as a group have been under growing pressure in China, where the market has shifted quickly to battery-electric vehicles and domestic brands have been taking market share.
Foreign automakers saw their share of China's auto market, now the world's largest, drop by 5.5 percentage points last year, to 45.6%, according to the China Passenger Car Association.
The joint-venture model, which China had insisted on as a condition of investment by foreign automakers, is under threat, said Chee-Kiang Lim, managing director of China at Detroit-based consultancy Urban Science.
"The joint-venture policy was originally designed to compel foreign brands to share their brands and technology with local Chinese (automakers) in exchange for access to China's large, growing auto market," he said.
Now that Chinese automakers are more "confident that they have closed the gaps with or even surpassed their foreign partners," he said, "we have to expect more JVs to unwind in the coming years."
The bankruptcy of the Jeep venture is the latest chapter in a turbulent history for the first foreign brands to have invested in China when it was an almost non-existent market for global automakers.
The former AMC invested in a Beijing Jeep joint venture in 1984, the first such deal for vehicle production in China by an American brand.
The operation went through ownership changes after AMC was acquired by Chrysler and then Chrysler was acquired by Fiat, which became Stellantis in 2021 after a merger with Peugeot.
Tesla (TSLA.O) is the only global automaker that was granted a waiver to produce cars in China without a joint venture.
