alfaromeo.jpgGood news for long-suffering Alfisti exiled in China. Italy's Fiat plans to introduce the iconic Alfa Romeo marque to China as part of a new accord with China's Chery Automobile.

The two carmakers will will form a 50:50 joint venture to produce Alfa Romeo and Fiat cars for the Chinese market. Production will start in 2009 and the target is for 175,000 vehicles a year.

As a one-time Alfista — owner of an Alfa Romeo car — EngagingChina has always had a soft spot for the upmarket Italian marque. Although it has lost some of its unique character since it was taken over by Fiat in 1986, Alfa Romeo is a marquee that has raced as many hearts as cars and won as many championships as accolades.

Fiat's agreement with Chery is another sign of how carmakers based in the high-cost countries of the west and Asia are shifting more production to China to drive down costs, while China's homegrown producers are keen to tie up with foreign carmakers to gain expertise.

In typical Italian fashion, Fiat's China strategy has to date been confused — it currently operates with six JVs — and its main venture with Nanjing Automobile has not lived up to expectations.

Fiat CEO Sergio Marchionne recently said that Nanjing Fiat has fallen short of pledged investment. It had sales of 31,300 cars in 2006, short of Marchionne's target of 40,000. Fiat wants to sell 300,000 cars in China by 2010. See this EngagingChina story for more.

The relationship with Nanjing Auto is apparently still in force although it is clear that Fiat is now betting on Chery to help accelerate Fiat's growth in China, where the Italian company accepts that its strategic mis-steps have caused it to slip way behind other foreign carmakers.

General Motors is on track to sell more than 1m cars in China this year and Germany's Volkswagen hopes to hit 800,000, so the scale of the challenge facing Fiat in China is apparent.

Fiat and Chery said they aim to produce 175,000 cars a year from 2009, making and distributing Alfa Romeo and Fiat marques, as well as an unspecified number of Chery's own models.

The news of Fiat and Chery's plans to make cars together comes after the two companies clinched an accord for Chery to supply Fiat with engines.

More on the deal in this Wall Street Journal story

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