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New York Times

UANGZHOU, China, Feb. 18 - The Ford Motor Company is strongly leaning toward the selection of Nanjing to be the site for a large new assembly plant in China, as the cornerstone of a plan to invest more than $1 billion in the world's fastest-growing auto market, people close to the company said this week.

The assembly plant would most likely produce versions of the Ford Focus, these people said. The Focus, a compact, is one of the company's newest and more technologically advanced models; it succeeded the Escort in the American market.

Kenneth Hsu, a Ford spokesman, acknowledged that the company was in the final stages of choosing a site for the assembly plant, but insisted that no decision had been made. "It is still in process, we are close to making a decision," he said.

Some auto industry consultants, when told of the company's interest in Nanjing, 142 miles northwest of Shanghai, said that they had previously assumed Ford would build next to its existing joint venture with the Changan Automobile Group, a second-tier manufacturer, in Chongqing, 800 miles up the Yangtze River from Shanghai. They were also surprised that the factory apparently will not be producing a larger model, like the Taurus.

Automakers like Honda and General Motors are believed to be making large profits by selling sedans that are at the larger end of midsize cars, like the Honda Accord and Buick Regal, to China's upper-income families.

By contrast, the small-car market in China is already packed with multinationals and domestic manufacturers that have been cutting prices in a strenuous fight for market share. In Chongqing, Ford already makes the Ford Fiesta, an aging model only slightly smaller than a Focus, and the Ford Mondeo, a German-designed compact car only slightly larger than a Focus.

Building small cars now in China represents an optimistic bet that the middle class will grow in China. Increases in income have so far been heavily concentrated among the wealthiest factory owners, bankers, developers and other entrepreneurs and politically connected people.

BMW and DaimlerChrysler's Mercedes have found the greatest demand for their largest and most expensive models, those costing more than $100,000 apiece, in contrast with most other countries, where their less expensive models tend to sell in greater numbers.

Graeme Maxton, a managing director of Autopolis, a consulting firm based in London, said that it would take Ford several years to build the factory and by the time it went into production the Chinese market would be glutted with overcapacity from other multinationals' new projects.

"Ford will have to compete with a flurry of new competitors, emerging local producers and well-established rivals, and that will make it extremely difficult to achieve its objectives," he said. "At this stage, why not wait?"

But Michael Dunne, the president of Automotive Resources Asia, a Bangkok-based consulting firm, said that after warning last year about possible overcapacity in the Chinese auto market, he was becoming more optimistic that the Chinese economy might continue to grow fast enough to absorb all the additional cars being built. Sales growth slowed in January, but that may have been because the Chinese New Year came early this year.

Putting the new factory in Nanjing would be a coup for Ford, Mr. Dunne said, because it would put the automaker close to the large and prosperous market of Jiangsu Province to the north.

Chongqing is in a much less thriving region of the country, and ferrying imported auto parts up the river is a complex task, Ford officials have acknowledged. Michael Robinet, the vice president for global forecasting at CSM Worldwide Inc., a consulting firm in Farmington Hills, Mich., said that a Nanjing factory would be close to the Chinese factories of multinational part suppliers like Visteon, Delphi and Denso.

Mr. Dunne said that given the many trade barriers between provinces in China and the willingness of provinces to enact policies that discriminate in favor of manufacturers inside or close to their borders, a Nanjing factory would be even more helpful in terms of access to provincial markets than in logistics.

The biggest hurdle could be winning the approval of Beijing, which wants more multinationals to expand into the country's interior. But Ford's plan to produce small, affordable cars with modern technology is likely to please China's economic planners.

The wealthiest part of mainland China is in and around Guangzhou in southeastern China, where Honda has its Chinese operations and where exporters in many industries have their factories. But the region around Shanghai, including Nanjing itself, is catching up.

William Clay Ford Jr., the chairman and chief executive of Ford Motor, announced last October that the company would build a second assembly plant in China and an engine plant in an expansion of its joint venture with Changan in Chongqing. He did not disclose then where the new factories were to be built or what they would produce; Ford continues to keep the location of the planned engine plant a tight secret.

Several experts said that it would make more sense to put the engine factory in Nanjing than deep in the Chinese interior, especially given the need for engine factories to have ready access to parts from high-technology suppliers in industrialized nations.

Ford was late entering the Chinese market, losing out to General Motors in the early 1990's for the right to form a joint venture with the Shanghai Automotive Industry Corporation. Ford has been struggling since to catch up with Volkswagen and G.M., which have their most important operations in Shanghai and have turned China into a mainstay of their profitability.
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