Jaguar Land Rover in tie-up with Chery

The Financial Times, March 21, 2012

Jaguar Land Rover is to form a joint venture with China’s Chery Automobile in the UK premium carmaking group’s first foray into manufacturing in the world’s largest car market.

Indian-owned JLR and Chery said on Wednesday that they had reached agreement on a proposed joint venture that will build vehicles under the British group’s two brands, as well as those of the joint company itself. The two companies did not disclose financial terms of the deal, which still must be approved by Chinese regulators.

China requires foreign carmakers that wish to build vehicles locally to form joint ventures and recently began requiring them to establish local brands.

JLR and Chery said they would also establish a research and development facility in China, build engines and sell vehicles produced by the joint venture together.

JLR, which makes most of its vehicles at three plants in the UK, is a latecomer to manufacturing in China, where its larger premium competitors Audi, BMW and Mercedes-Benz have built cars with local partners for years and are recording record sales.

The two UK brands sold 42,000 cars in China in 2011, a 60 per cent rise on 2010 and equivalent to 17 per cent of the group’s global sales, up from just 1 per cent in 2005. China is the JLR’s third-largest market, after the UK and the US.

In a country where large vehicles are popular, Land Rover’s 4x4s are selling particularly well. JLR earlier this month began recruiting 1,000 workers for its plant in Halewood, near Liverpool, that makes the marque’s Evoque and Freelander 2 small sport utility vehicles.

JLR already produces the Freelander in its owner Tata Motors’ home country of India, and is looking to expand operations there. Speaking in Geneva earlier this month, Ralf Speth, JLR’s managing director, said that the carmaker was in discussions with several parties in Brazil about launching manufacturing there.

Chery, based in Wuhu in China’s Anhui province, is one of the country’s largest privately owned carmakers. It makes cars, SUVs, engines, and transmissions and sold 643,000 vehicles last year, making it China’s sixth-largest carmaker.

Most of the country’s big automakers already have at least one JV with a foreign producer, but this will be the first for Chery, which has a reputation in the industry for independence .

The Chinese company in 2007 signed a letter of intent to build cars with Italy’s Fiat which was never consummated. In 2009 Chery and Chrysler broke off long-running plans to co-operate on small cars as the US carmaker headed towards a bankruptcy filing.

“Chery is an unproven company when it comes to dealing with multinationals,” said Bill Russo, a former Chrysler executive who runs Synergistics, an auto consultancy.

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