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MENAFN - AFP - 21/11/2012

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(MENAFN - AFP) Italian car maker Fiat is returning to China five years after a failed joint venture, but now faces entrenched competition and slowing growth in the world's biggest auto market.

Fiat, the world's seventh largest car maker after taking a majority stake in Chrysler when the troubled US firm emerged from bankruptcy in 2009, has been conspicuous by its absence from the critical Chinese market.

But the first sales of its new Viaggio, a compact produced at a 790 million joint venture plant in Changsha city, come as China's economy stumbles and cities slap limits on vehicles over pollution and congestion.

Fiat-Chrysler's very presence in China also set off a political storm in the recent US presidential election, after Republican candidate Mitt Romney ran an attack ad implying that it would export American jobs.

But the company says future plans to build Jeep brand sport utility vehicles in China are an expansion, not a transfer of operations.

In the first 10 months of this year, China's passenger car sales rose 6.9 percent from a year earlier, to 12.57 million vehicles.

The increase was a far cry from the 33 percent rise in the whole of 2010, although slightly up on last year. Consultancy McKinsey on Wednesday forecast average growth of eight percent a year until 2020 -- down from a 24 percent average over 2005-2011.

"It's really high time that Fiat has come back and launched a locally-manufactured model," said Klaus Paur, Shanghai-based global head of automotive for market research company Ipsos.

"You need to be in China. If you are not here, you are losing out completely."

Fiat will have to build a name for itself among Chinese consumers, set up a dealership network and introduce new models to compete against other established foreign players, he said.

The Viaggio is priced at 17,300 to 25,200 to lure buyers in the market's most keenly-contested segment.

"Italian design is something that really differentiates us," said Bob Graczyk, commercial director for the joint venture GAC Fiat Automobiles Co. "It's of course very competitive, but there's plenty of room for the Viaggio."

Jack Cheng, GAC Fiat general manager, added: "Our first priority is to get the Fiat right. If we don't get it right, we don't even have a future -- that's it."

Fiat exited a joint venture with Nanjing Auto in 2007 after falling out with its partner over its vehicles' disappointing sales.

Once it made the strategic decision to return to China, it found a new partner, Guangzhou Automobile Group Co. (GAC), and designed the car in 18 months. Production began in June and sales in September.

GAC needs Fiat too after it saw a 60 percent fall in third-quarter profits as buyers shunned the Japanese-brand vehicles it produces with Honda and Toyota. One of its previous joint ventures, with French auto group PSA Peugeot Citroen, also failed in 1997.

"If you get divorced, you will appreciate your next marriage and we both are," said Cheng.

With European auto sales falling, China represents a major potential market, said Sergio Marchionne, Fiat's chief executive officer.

"In China, now the world's largest single car market, they're still experiencing phenomenal growth and demand," he told an industry conference in Shanghai last month.

"It's going to give an opportunity to a lot of people... I just want Fiat-Chrysler to participate."

The GAC Fiat plant in Changsha, in the southwest, currently has an annual output capacity of 140,000 vehicles and the company hopes to lift it to 300,000 units, producing four different vehicle bodies.

But other foreign companies including General Motors and Ford have been in China uninterruptedly since the 1990s.

In the first 10 months of this year GM sold 194,357 Chevrolet Cruze cars in China and Ford sold 221,130 Focuses -- both of which compete with the Viaggio.


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