Chinese newspaper reports suggest that Chery Automobile Co is in talks to acquire Fiat's shares in Nanjing Fiat, the Italian firm's 50-50 joint venture partnership with Nanjing Auto of China. The comments were reported in the 21st Century Business Herald, one of China's most respected economic newspapers; founded in 2001 it is published three times a week. Citing undisclosed sources the newspaper said that Fiat was intent of giving up its shares in Nanjing Fiat, and that Chery has sent a team to Nanjing Auto to conduct a general review of operations.

The Nanjing Fiat joint venture, which was set up at the end of the last decade, hasn't been a success story and last year only around 30,000 cars were produced, meaning that Fiat is lagging behind most of its close European rivals in getting a foothold in China as they all target grabbing a slice of this lucrative and rapidly-growing market. Fiat have been dissatisfied with the commitment to the project by Nanjing Auto, who themselves have been recently focused on relaunching the MG brand. The Chinese firm bought the assets of the defunct MG Rover car company and have rolled out ambitious plans to put back into production a small MG sportscar at the former Longbridge plant in the UK, as well as a new site in the USA. Alongside this strategy Nanjing Auto has put the Rover 75 sedan back into production at a new Chinese facility.

During a news conference at last week's special Fiat Group stockholders' meeting in Turin Fiat CEO Sergio Marchionne added grist to the rumour mill by saying that he had "expressed our doubts" to Nanjing Auto after the firm launched production of the two new sportscars last month.

Late last year Fiat entered into an agreement with another Chinese carmaker, this time to purchase 100,000 engines a year from Chery Automobile Co. The units will be 1.6- and 1.8-litre units drawn from Chery's new ACTECO 'family' of engines which range from a compact 0.8-lite unit to 4.0-litre V8. The ACTECO engines, which are all Euro IV compliant, were developed with input from Austrian engine specialist, AVL List. They are expected to be used in cars such as the Grande Punto and Linea which will be built in China and India, as well as a proposed new 'low cost' car.

Marchionne recently cranked up speculation that a wider collaboration is in the pipeline by commenting that: "Chery is a young and modern company with a solid technical background. I am glad to welcome this further step in our strategy of targeted alliances. In the relation with Chery we see the potential for a wider cooperation both in powertrains and, eventually, in other automotive sectors."
 

The Fiat CEO has made targeting an array of strategic alliances in different sectors a central plank of the Turinese firm's forward planning; these diverse partners include Tata Motors, Ford, Severstal Avto, Suzuki and PSA Peugeot-Citroen.

Chery Automobile Co was set up in 1997 when the budding carmaker acquired the production line of the first-generation SEAT Toledo. The first car rolled off the production line in 1999 and Chery exported its first cars (to Syria) two years later. By the end of 2002 production had reached 50,000 units per year and two years later this had quadrupled. It is now the biggest domestic car manufacturer. Chery has ambitious plans to become a global carmaker and it will build a new small car for DaimlerChrysler. Chinese sources believe that Chery is interested in setting up a separate operation to manage the Fiat brand in China. "Chery will register a new subsidiary to team up with Fiat in an attempt to remain an independent brand," a Chery source told the China Daily news.

Senior Chery executives and official from the Wuhu regional government, which wholly owns the firm, have confirmed that talks about extending the cooperation are on-going with Fiat. Zhan Xialai, Party secretary of the Wuhu government, last month told China Daily: "Fiat made overtures to us for additional cooperation. However, we will not give up the Chery brand, whoever we collaborate with," Zhan added.

Meanwhile an unidentified senior Chery executive told the Reuters news agency: "We have talked with Fiat about cooperation. One option is for Chery to make cars using Fiat’s technologies, and the models would be sold anywhere. The Italians favour the China market."