An auto manufacturer in China looks to purchase American car brand Jeep, but whether politics might get in the way of a deal is a concern, according to multiple media reports.
Great Wall Motor of China is interested in buying the Jeep brand from Italian-controlled Fiat Chrysler Automobiles (FCA). Great Wall Motor, the market leader in SUVs in China since 2009, has yet to make a formal offer or meet with FCA’s board, according to equity analysts Patrick Yuan and Laban Yu, both of Jefferies.
“We believe Jeep SUVs complement (Great Wall Motor’s) current product line and a successful acquisition will make it a global SUV leader much sooner,” according to a flash note by Yuan and Yu. “China-owed Jeep will be more valuable in our view.”
The chairman of Great Wall Motor, Wei Jianjun, “may have to give up majority control to pay the price,” Yuan and Yu said. “We remain cautious on political resistance which may complicate the deal.”
With the existing trade issues between the United States and China, political tension for the deal is likely. “As Jeep is one of the brands rooted in U.S. spirits, the road ahead for the deal might be tough,” according to Yuan and Yu.
Great Wall Motor will likely have to increase its debt and equity to complete such a deal. The company’s market cap is $16 billion, while FCA’s is $20 billion. The Jeep brand is worth between $20 billion and $24 billion, according to Yuan and Yu. Great Wall Motor has a 10%-12% market share in SUVs in China. The company sold 80,000 of its most popular SUV, the H6, in December. In 2016, it sold 1 million vehicles, and if it were to acquire Jeep it would more than double its sales.