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Ford speeds China expansion with 3rd plant
Published on: 2009-09-23
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Sept. 23 (Bloomberg) -- Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, is boosting its bet on China with a new factory and models as it tries to catch General Motors Co.

Chief Executive Officer Alan Mulally is traveling to China on Sept. 25 to break ground on Ford’s third plant in the country, two people familiar with the plans said. He will announce “news about Ford’s continued expansion” of its small- car lineup in India today, spokesman Ray Day said in an e-mail.

“China had been an afterthought for previous management at Ford, but Mulally realizes how important it is,” said Brian Johnson, a Chicago-based Barclays Capital analyst who has a “neutral” rating on Ford. “This is more of a five-year move than something that will move the dial this year or next.”

Ford, the second-largest U.S. automaker, ranks 12th in China with 2.8 percent of sales, according to auto researcher J.D. Power & Associates. GM, which emerged from a U.S. government-sponsored bankruptcy July 10, outsells Dearborn, Michigan-based Ford by 3-to-1 in the country, building twice as many vehicles.

The new factory in Chongqing, southern China, will produce high-end sedans and sport-utility vehicles, China’s state-run Xinhua news service reported. It will have annual capacity of as much as 300,000 units, Xinhua said.

Ford already has a plant in Chongqing with Chinese partner Chongqing Changan Automobile Co., and had a 30 percent rise in sales in the first eight months of this year, helped by new models and the government’s stimulus spending, J.D. Power said. The country’s overall vehicle sales may rise 28 percent this year, according to the government, likely passing the U.S. as the world’s largest auto market.

Compete With GM

The high-end sedan will give Ford a car to compete against Detroit-based GM’s Buick models, while the sport-utility vehicle will capitalize on demand for that category in China, said Johnson. Ford spokeswoman Whitney Small declined to confirm the new models or the new plant.

“It might seem counterintuitive that as the rest of the global auto market is downsizing Ford is upsizing in China,” Johnson said. “But it makes sense because there is more room to grow in the high-end of the Chinese market.”

Ford rose 18 cents, or 2.6 percent, to $7.01 yesterday in New York Stock Exchange composite trading. The shares have more than tripled this year.

The worst recession following World War II helped drive GM and Auburn Hills, Michigan-based Chrysler LLC into government- sponsored bankruptcies this year as auto demand fell. China has been a bright spot for GM, with its sales in the country rising 24 percent this year through July, according to J.D. Power.

Chrysler started producing Jeeps in China in the 1980s, and GM began selling Buicks in 1998 and Chevrolets in 2004. Ford didn’t sell passenger vehicles in China until this decade, J.D. Power said.

‘Showed More Caution’

Ford has a chance to gain ground in China now as demand climbs and it reduces losses in the U.S., said auto analyst Tim Dunne of J.D. Power in Westlake Village, California.

The company “showed more caution going into China, but maybe that was the prudent approach because they didn’t go through bankruptcy,” Dunne said. “They had a calamity going on in North America that was draining the bulk of management’s attention. Now the prospects are good for them in China.”

Further China investment is part of Ford’s push in Asia. Mulally’s China trip is his first in a year, and his India visit follows Ford’s Sept. 3 announcement that it will introduce a small car in the country in 2010.

China Sales Rise

Ford reported a pretax loss of $25 million in the Asia- Pacific and Africa regions in the second quarter, compared with the year-earlier $50 million profit before taxes. Ford’s total sales in China rose 39 percent in the three months ended June 30, the automaker said.

Overall, Ford posted second-quarter net income of $2.26 billion after an accounting gain. The company’s $638 million operating loss in the three months ended June 30 was less than half of what analysts had estimated. Ford hasn’t had an annual profit since 2005. Mulally has said the automaker will break even or earn a profit in 2011.

Ford and partner Chongqing Changan Auto have the Chongqing plant, which can build 267,000 vehicles a year, and another in Nanjing that can produce 180,000. The factories make Fiesta, Mondeo, Focus and S-MAX autos for Ford as well as models for Mazda Motor Corp.

Ford is moving the headquarters of its Asia-Pacific operations to Shanghai, from Bangkok, evidence of the growing importance of the Chinese market to the automaker, said Shanghai-based auto analyst Mike Dunne of J.D. Power.

“Ford is concentrating their resources in what is becoming the most important market in the world,” said Dunne, who is Tim Dunne’s brother. “China is going to be a case of who has the deepest pockets and financial perseverance? Ford can do well here. It’s just a matter of execution.”

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