Ford Late in China Sees New Buyers Making Laggard a Leader: Cars

Joe Hinrichs, Ford Motor Co. (F)’s top executive in Asia, has a solution for the carmaker’s minnow status in China: cheap cars in backwaters.

“If you want to become a volume leader in the world, you’ll have to compete at the lower price points because that’s where the growth is,” Hinrichs, who oversees Ford operations in the Asia Pacific and Africa region, said over lunch at Morton’s in Shanghai last week. “In China, we decided -- and you can debate the intelligence of that decision -- not to offer a full range of products. That’s something we’re changing.”

For now, Ford’s offerings in China are neither cheap enough nor extensive. The Fiesta subcompact, the lowest-priced of the automaker’s five models, costs 40 percent more than General Motor Co. (GM)’s entry-level Chevrolet Sail. Volkswagen AG (VOW), Europe’s largest carmaker, has a product lineup that starts from the 75,800-yuan ($12,000) Jetta to the 2.32 million-yuan Audi R8 sportscar.

Gaining ground in China would help Ford reduce its reliance on U.S. sales, which unexpectedly fell last month, and blunt European losses projected to exceed $1 billion this year. With GM and VW pushing into the Chinese hinterland in search of the next phase of growth, Chief Executive Officer Alan Mulally is committing $4.9 billion in spending on new factories and models in Asia to back his target to raise the region’s contribution almost fivefold to a third of global sales by 2020.

Photographer: Keith Bedford/Bloomberg

Signage for a Ford Motor Co. dealership sits sits a top a showroom in Beijing, China, Friday. Close

Signage for a Ford Motor Co. dealership sits sits a top a showroom in Beijing, China, Friday.

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Photographer: Keith Bedford/Bloomberg

Signage for a Ford Motor Co. dealership sits sits a top a showroom in Beijing, China, Friday.

Strategy Shift

Introducing lower-priced models in China and Asia marks a shift in strategy for Ford, which has historically offered products to the higher end of its price segment, said Hinrichs, who was appointed to the Asia job in 2009 by Mulally after stints in labor affairs, manufacturing and running Ford’s operations in Canada.

In 2010, the company introduced in India the Figo hatchback, a move that helped almost triple deliveries in the fiscal year it went on sale. For China, less-developed cities in the country’s inland provinces hold the key to future sales growth, Hinrichs said.

Vehicle sales in China, including trucks and buses, are projected to rise 5 percent to 8 percent this year to 20 million units, according to the China Association of Automobile Manufacturers, even amid the slowest economic growth in three years.

While that’s slower than the explosive rates of growth in 2009 and 2010, when deliveries grew 46 percent and 32 percent respectively, it still makes China the most attractive market with the biggest potential, a trend that’s unlikely to change for years to come given the weakness of European demand, said Hinrichs.

Late Start

Ford’s newfound commitment to expand in China may prove too late as GM and VW entrench themselves as the automotive brands of choice with the car-buying public, according to Klaus Paur, an industry analyst.

When Ford first pushed into China in 2002, it was losing money at home and starting a wrenching restructuring. The company arrived in China almost a decade behind GM, which won a crucial partnership with Shanghai Automotive Industrial Corp. in 1995. Volkswagen built its first car in China in 1985.

The first-mover advantage shows. VW accounted for five of the 10 top-selling passenger vehicle models this year, GM had three, including the bestselling Buick Excelle and second-placed Chevy Sail. Ford’s Focus small car ranked eighth by sales, with Hyundai Motor Co. (005380)’s Verna rounding off the list, according to auto association data.

Ford had a 2.4 percent share of the country’s light-vehicle market, compared with 19 percent for VW and 10 percent for GM, data from industry researcher LMC Automotive show.

‘Less Aggressive’

“This is the story of Ford,” said Paur, Shanghai-based global head of automotive at researcher Ipsos. “They are slower and less aggressive than their competitors in bringing new cars into the market.”

To address that gap, Ford is building a $760 million assembly plant in Hangzhou, an hour west of Shanghai by high- speed train, slated for completion in 2015. The factory will double output in the country to 1.2 million vehicles annually. Expanding production in China is crucial because locally built autos are exempt from import duties that can add more than 25 percent to the price tag.

Ford will also add three SUVs to its China lineup to cater to more upscale demand, Hinrichs said. SUVs are the fastest- growing vehicle segment in China, with first-half sales gaining 32 percent versus 7.1 percent for total passenger-vehicle deliveries, according to auto association data.

SUV Demand

The Explorer SUV will be imported and available next year, while the automaker will build the Kuga, known as the Escape in the U.S., and smaller Eco Sport at its existing plant in Chongqing in southwestern China.

The carmaker has no plans at present to bring its premium Lincoln brand to China, according to the company, where it will compete against leaders Audi, BMW and Mercedes-Benz. Ford currently sells the Mondeo, Fiesta, Focus, S-Max minivan and the imported Edge in China.

Ford’s bid to catch up in China will be aided by the lack of brand loyalty, with the majority of buyers purchasing a vehicle for the first time, according to Jochen Siebert, managing director at JSC (Shanghai) Automotive Consulting Co.

“They are on the right track, going into the right segments, doing the right things,” said Siebert, who predicts Ford’s sales will almost triple in China to 1.1 million vehicles by 2018. “The new products will change the way people look at Ford.”

Hinrichs, touted as an internal contender to succeed Mulally as CEO, recognizes that the expansion plan will take several years to bear fruit. Reminders that China is one of the most competitive markets are also never far away.

“There’s no home run in this,” said Hinrichs, who is chauffeured in Shanghai in a Lincoln Navigator SUV. “I look out the window and there will be brands I don’t recognize. I’ll ask my driver but sometimes he also doesn’t know.”

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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