DETROIT (Reuters) - Chrysler Group LLC said on Tuesday it has agreed to make Jeeps in China with partner Guangzhou Automobile Group Co Ltd in a move to catch up with rivals in the world's biggest car market.
Producing the Jeep in China is important for Chrysler, which is controlled by Italian automaker Fiat, as it is the only way for the brand to reach its potential in t
he country, said Jeep CEO Mike Manley at the Detroit car show.
"I think we have a lot of potential in China," Mike Manley, CEO of the Jeep brand, told Reuters Insider. "For us to make real headway we have to localize our vehicles there."
Jeep will continue to produce vehicles in the United States.
Chrysler CEO Sergio Marchionne, who also runs Fiat, believes that Jeep is one of a handful of Fiat and Chysler brands with global potential. Jeep sales set a new record last year, rising 19 percent to over 700,000 vehicles. Marchionne is counting on building sales of brands Jeep, Alfa Romeo, Maserati and the Fiat 500 to offset losses in Europe.
Fiat and Chrysler lag far behind other foreign carmakers in China, where Chinese consumers bought 19.3 million cars last year. General Motors and Volkswagen both sold over 2.8 million cars in China last year, and together accounted for over 29 percent of total vehicle sales in China, according to IHS Global Insight.
Jeep, Chrysler and Fiat, by contrast, sold just over 60,000 cars in China in 2012. The newly-launched Fiat Viaggio had sales of about 10,000 in its first three months, Fiat said.
Fiat aims to boost sales in China to 300,000 by 2014, the company has said. It opened its first factory there last year, where it builds the Viaggio sedan on a platform shared with the Alfa Romeo Giulietta and the Dodge Dart.
No decision has been made yet on how many Jeeps to build in China, said a GAC executive on Tuesday.
"We are going to enhance our cooperation with Chrysler and Fiat on R&D and components purchasing and the production," said Zeng Qinghong, vice chairman and president of GAC, on the sidelines of a press event at the Detroit auto show.
Fiat's stock rose more than 6 percent in Italy on Monday when an Italian paper reported that a new agreement to build Jeeps in China was imminent.
Banca Akros analysts said on Monday China would be a key market to help Fiat reach or exceed a medium term target of selling 800,000 Jeeps per year.
"The announcement would also demonstrate that the Fiat/GAC partnership is working well and that GAC is a reliable partner for future developments," said the bank in a research note.
Fiat's partnership with GAC is its third one in China, after terminating previous partnerships with Nanjing Automobile Group and Chery Automobile Co.
Jeep's expansion plans in China come as the head of the GAC-Fiat joint venture, Jack Cheng, plans to step down and move to a new position in the group.
"This is a planned succession," said Manley, who is also the Fiat-Chrysler executive in charge of the Asia-Pacific region. "This is not a shock or a surprise."
Manley declined to identify Cheng's successor at GAC-Fiat but said a new chief executive will be announced in February.
Chinese media reported recently that Cheng plans to move to the Fiat-owned parts maker Magneti Marelli. A spokesman for Magneti Marelli was unavailable for immediate comment on Tuesday.
Prior to joining GAC-Fiat in 2010, the native of Taiwan had been head of purchasing for Fiat in China since 2007. Fiat also makes trucks and agricultural machinery in China.