Ford Motor Co. (F), the second-largest U.S. automaker, and partner OAO Sollers will introduce a third sport-utility vehicle in Russia and boost engine production in the country to meet rising demand.
The Ford Sollers venture will build the EcoSport SUV in the second half of 2014 and as many as 105,000 engines a year at the factory beginning in December 2015, both in Russia’s Tatarstan region, according to a statement. The $274 million plant will eventually have capacity to make as many as 200,000 engines a year, Dearborn, Michigan-based Ford said.
Chief Executive Officer Alan Mulally is filling holes in Ford’s product portfolio in Russia, which is poised to become Europe’s biggest auto market. While its Focus compact car was the No. 2 best-selling non-Russian model last year, a lack of local production has held Ford back in SUV segments that were almost one-third of the market.
“What’s really booming here in particular are the SUVs,” Ted Cannis, CEO of Ford Sollers, said in a telephone interview. “With our footprint here, because the only localized vehicles that we had that could be really competitive were the Focus and the Mondeo, we could only participate in part of the industry.”
New car sales in Russia may total 2.8 million to 3.1 million units in 2013, according to AEB Automobile Manufacturers Committee estimates. Achieving the upper range of that projection could propel Russia past Germany, which totaled 3 million deliveries in 2012, according to Bloomberg Industries.
Ford and Sollers began producing the U.S. automaker’s Explorer SUV in the Tatarstan region in April. The venture also has been selling the Kuga SUV, which is marketed as the Escape in the U.S. Full production of Kuga in Russia will be reached in this year’s second half, Cannis said.
Carmakers avoid tariffs of as much as 30 percent by assembling vehicles and sourcing enough of their engines, gearboxes and components locally.
“There was very good reason to localize that production in Russia, and the government makes it easy,” Cannis said. “There’s a clear advantage to making the investment to localize your parts to the extent you can based on the scale you can develop and sell out of Russia rather than importing from long distances.”
Ford rose 1.9 percent to $14.27 at the close in New York. The shares have increased 10 percent this year compared with a 16 percent gain for the Standard & Poor’s 500 Index.
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