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China:Ford to triple China output in '04 to chase GM

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Ford to triple China output in '04 to chase GM
Reuters / June 08, 2004

BEIJING -- Ford Motor Co. aims to more than triple output in China this year, executives said Tuesday, as it races to catch up with General Motors and other foreign manufacturers in the world's fastest growing major car market.

Ford plans to make 65,000 vehicles in China in 2004, less than 1 percent of its global production and about a tenth of archrival GM's output in the country.

Rivals such as GM, Volkswagen AG and Toyota Motor Corp. plan to spend about $13 billion to make about 6 million cars there in coming years. That has stoked fears of a glut, which could lead to a price war at a time when global capacity is outstripping demand.

GM will spend $3 billion to double output in China to 1.3 million units by 2007. Rival Toyota aims to make up to 400,000 cars there by 2010.

And with Beijing trying to gently cool its racing economy, some fear sales growth could slow to as little as 10 percent in 2004 after nearly doubling to 2 million units in 2003.

That's partly why Ford executives, while hoping to accelerate the company's expansion, are cautious.

"Sure, we'd like to move faster, but our primary concern is to build on solid foundations," Mark Schulz, executive vice president of Ford Asia, told reporters ahead of the Beijing auto show. "Long-term success takes patience and prudence."

WEAK MARKET POSITION

Still, analysts say Ford may be moving too slowly.

Ford commanded less than 1 percent of the Chinese market at the end of 2003, with sales of 17,000 vehicles vs. leader Volkswagen AG's one-third share and GM's 19 percent.

Knocked off its No. 2 perch in the global rankings by Japan's Toyota in 2003, Ford makes cars with Chongqing Changan Automobile Co. Ltd. at a plant on the edge of China's impoverished western hinterland.

Ford says the venture, Changan Ford, became profitable last year, its first year of operations.

Meanwhile, GM's profit from its ventures nearly quadrupled to $162 million in the first quarter. If sales growth and profitability continue at those rates, China would produce about a quarter of GM's $4 billion in profits forecast by analysts this year.

"The company's troubles at home and their late entry to China mean Ford has less money to throw around than GM," said autos analyst Xu Xiang at China Southern Securities.

Analysts say China's carmakers are in danger of cranking out more vehicles than they can sell, driving prices down as has happened in mature markets.

Carmakers in the United States are sitting on about 4 million unsold vehicles worth $100 billion, said Daron Gifford, a managing director with ABeam Consulting.

"China's capacity is also in excess and growing rapidly," Gifford told a forum on the sidelines of the Beijing auto show, China's largest car exhibition.

Some carmakers in China are worried.

"There's definitely strong pressure on prices in China. It's by far the most competitive market worldwide and everybody is decreasing prices," said Jean-Martin Folz, chairman of France's PSA/Peugeot-Citroen SA.

"There is obviously a limit to that, and I hope we reach it as soon as possible," Folz told Reuters.

PLANT EYED NEAR SHANGHAI

Ford is in the midst of a multiyear restructuring program aimed at ensuring a pretax annual profit of $7 billion by the middle of the decade. It is working to boost profits in its major U.S. and European markets.

Anxious not to sit still while its rivals expand, it aims to invest more than $1 billion in China in coming years and has applied for approval to build a second plant, possibly with Japan's Mazda Corp., in the prosperous east, executives said. Ford owns a third of Mazda.

That plant, in the city of Nanjing near China's richest city of Shanghai, will be run by Changan Ford.

"It's safe to say the proposed plant in Nanjing will be similar," Changan Ford President Ron Tyack told reporters. "Most assembly plants are in the vicinity of 150,000 to 200,000 units."

Its existing plant is sited about 938 miles from demand hot spots such as coastal Shanghai, where GM has a venture that will soon build its Cadillac models.

Ford, which rolled out its Maverick and Mondeo in China last year, plans to launch a model each year on the mainland and eventually sell a full range of cars in the country.

It expects to sell 40,000 Mondeo sedans in China this year.

Partner Mazda has said it is looking for ways to cooperate with the U.S. automaker. It said Tuesday that it aimed to increase sales by 37.5 percent to 110,000 vehicles in China this year.

"Ford and Toyota are working very hard to catch up. We think that's going to be an uphill strategy," GM's China chief Phil Murtaugh told reporters Monday.
 
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