As it looks to counter the effects of declining European sales, Fiat is turning an eye towards China. Still viewed as the world’s largest automotive market, Fiat thinks there’s opportunity to resume Jeep production in China for the local market.

Today, all Jeep models are produced in the United States, at assembly lines in Michigan, Illinois and Ohio. In the pre-Fiat days, however, some Jeep models destined for China were built in in Chinese plants.

Now, according to Bloomberg Businessweek, Fiat is in discussion with its Chinese partner, Guangzhou Automobile Group, about the potential of restoring Jeep production in China. One of the topics is whether all Jeep models should be built there, or just the highest-volume ones.

Jeep’s chief operating officer, Mike Manley, calls the sales volume opportunity in China “very significant,” but is quick to point out that Chinese production would supplement U.S. production, not replace it. Also being considered is a plan to up U.S. output, though  existing plants may not have the capacity needed to meet potential demand in China.
While Chinese buyers appear to have cooled on ultra-luxury brands and exotic sports cars, the same can’t be said of Jeep’s products. Led by strong sales of the Grand Cherokee and Compass, Jeep exceeded its total 2011 sales by the end of July 2012, and has since doubled last year’s sales.

Such sales performance is necessary to offset declining sales in Europe, where 2012 new car sales are expected to fall by the highest amount in nearly two decades. With no economic recovery in sight, it’s unlikely that European sales will pick up any time soon.

The plant that Fiat shares with Guangzhou has plenty of capacity, and there are likely valid political and financial reasons to build Jeeps for China in China. Given the significance of the market to Fiat, the decision may already be made.