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Old 04-21-2005, 07:53   #1 (permalink)
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China:Ford comes late to China's party

Ford comes late to China's party

By David J. Lynch, USA TODAY


Ford’s new plant in Nanjing, China, will be finished by 2007.
By Eugene Hoshiko, AP

SHANGHAI — Ford Motor is finally getting more aggressive in the world's fastest-growing car market.

But the automaker's belated expansion comes as China is leaving behind years of fat profits and entering a new era of fierce competition and shrinking margins.

"They appear to be coming in now just as the market is coming off the boil. It's not the best time," said Garel Rhys, director of the U.K.-based Centre or Automotive Industry Research.

Ford this week said it is establishing a joint venture with its Chinese partner, Changan Automotive Group, and Mazda to build a new engine plant in Nanjing. Scheduled to become operational in 2007, the factory will be able to produce 350,000 powerplants annually. It will supply a nearby Ford auto plant, which is under construction.

Ford also announced — timed for the Shanghai Auto Show, which opens today — that it will build the four-door Focus sedan at its plant in Chongqing. And the company intends this year to boost its 110-member dealer network by 36%.

The new initiatives address some of the weaknesses that have hobbled Ford during China's three-year auto boom. Nanjing gives Ford a foothold in China's prosperous coastal belt, where car sales are concentrated. The company's existing factory in Chongqing lies deep in China's interior.

Building the Focus in China brings one of Ford's hottest models to the world's hottest market. Ford also will import its Lincoln Navigator SUV, targeting China's still small but free-spending new rich.

"While our initial approach was a bit slow, we are rapidly building momentum," said Jim Padilla, Ford's president and COO.

As car sales in China exploded in 2002 and 2003, Ford was left behind by rivals Volkswagen and General Motors. In 2004, Ford made and sold in China just 51,000 passenger cars. GM's joint venture with Shanghai Automotive Industry sold 252,869.

Mark Schulz, Ford executive vice president, insists that with just 3% of China's population owning cars, Ford has time to hit its stride. "I don't think a lead in today's market guarantees anything," he said.

But, "Ford has got a lot of catching up to do in China," says Ashvin Chotai of Global Insight.

It's a tough time to play catch-up. Chinese car sales last year of 2.2 million were up 14% from 2003. But the prior two years had spikes of 86% and 47%. Amid excess capacity, car prices — and profit margins — have been plummeting for more than a year. By 2007, vehicle sales are expected to be 7 million, but production capacity will be 15 million, says the State Reform and Development Commission.

Ford's hesitancy in China reflected its business difficulties, Rhys said. "The last few years, Ford has not been looking ******dly. It's been looking inwardly at its own problems."

And Ford may have been slowed by experiences in other emerging markets. It was among the first to set up in Brazil in the early 1990s when that market seemed poised to explode. But amid a plant-building spree and unforeseen economic woes, auto sales late in the decade were half what had been expected.
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