Looking back now, the board members of Beijing Jeep Corporation should have listened to their Chairman, Chen Zulin.
In the early 1990s Chairman Chen insisted on opening weekly board meetings with the same, tired mantra: "Gentlemen," Chen would declare, "we must make a plan, and pay close attention."
American and Chinese members would nod politely in agreement, then roll their eyes at one another in subtle mockery of the cautious and deliberate Chairman.
Who needed to worry about plans? The fact was that – through the late 1980s and early 1990s – faceless Beijing bureaucrats made all the production plans. And no one paid much attention to anything.
Least of all how to make a customer happy.
But lack of customer focus did not stop Beijing Jeep from raking in profits. Thanks to China’s command economy, whatever Beijing Jeep built in those days, the State bought.
"It was beautiful," recounts Kerry Ivan, a former director of finance at Beijing Jeep. "We used to tally up our profits for the whole year during the first week of January."
CKD makes $$$
Beautiful indeed. On an initial investment of just $8 million in 1984, Chrysler over the years took home profits of more than $50 million. Highland Park made money both on completely-knocked down (CKD) kit exports to China and at Beijing Jeep, of which it owned 42 percent.
Minting money on Jeep Cherokees in China was even more remarkable when you consider that customers did not really like the product. Government officials and state enterprise managers wanted a cozy seat in the back of a big sedan.
Instead, most officials in Beijing were force-fed Jeeps. In their eyes, the Cherokee was nothing more than a clunky truck with a stingy backseat. "To us Chinese, trucks are for farmers," is the way a friend in Beijing explained it.
Despite official disdain, the Cherokee continued to be a cash cow for Beijing Jeep and Chrysler.
Then, seemingly overnight, the rules changed. No longer, Beijing declared abruptly in 1995, would the state mandate purchases. Cherokee users defected, and gladly replaced their Jeeps with VW Santanas made in Shanghai.
At the same time that China’s car market entered its take off stage of development, Cherokee sales tanked.
Dreaming different dreams
When customers fled, the joint venture partners started pointing fingers. The Chinese accused Chrysler of strip-mining the joint venture. The Americans assigned to Beijing Jeep scoffed at Chinese incompetence.
The once amiable partners were now "sleeping in the same bed dreaming different dreams." Sales tumbled over a cliff.
In 1994, Beijing Jeep accounted for a still-admirable 10 percent of China’s 320,000 car sales. This year, Jeep sales will dribble down to around 5000 units – less than one percent of a market.
In 1999, a team of Germans from DaimlerChrysler took two hard looks at the mess. After round one, consensus was to let the soured joint venture expire.
But a second review prompted DaimlerChrysler to have another go. Last month, Beijing Jeep announced plans to invest $226 million to revive the business. Will the cash infusion turn things around?
Things went sour at Beijing Jeep because there was never a plan. Chrysler took in armfuls of profits each year, with no thought of brand building, distribution or customer service. Their Chinese partners, for their part, were more interested in banquets than business. The two sides ran their business into the ground together
In September both parties signed a new memorandum of understanding that includes the revamping of the joint venture’s management structure along with the introduction of two new models. The first will be the Grand Cherokee. "We have a long-term commitment to China," says Richard Ott, newly appointed President and Chief Operating Officer of the joint venture, "and see this as a good opportunity to breath new life into Beijing Jeep."
Seventeen years after starting the first automotive joint venture in China, Beijing Jeep is looking beyond next week.
Chairman Chen must feel vindicated.