Analysts: Can Ford afford all its costs?
(China Business Weekly)
Updated: 2004-03-02 10:53

US auto giant Ford, playing catch-up with arch-rival GM, plans to build a second car plant in eastern China to serve the booming area around the country's commercial hub, the company recently announced.

Ford, which aims to invest more than US$1 billion in the world's fastest-growing major car market over the next few years, signed an agreement recently that secured it rights to use land in Nanjing, which is a three-hour drive from China's richest city.

The plant will give Ford access to the bustling eastern provinces, and better talent pools, as it strives to compete against entrenched rivals General Motors Corp (GM) and Volkswagen AG.

But analysts suggest Ford's move might be too little too late. Volkswagen and GM, combined, control about half China's car sales.

"They came to the market very late, and this makes their job of competing with GM and Volkswagen that much more difficult," said Angela Gu, an analyst at Automotive Resources Asia, an independent industry consultancy.

"But the new plant is not just closer to the main markets, the labour pool is superior too," Gu added.

Ford, knocked off its No 2 perch on the global rankings by Japan's Toyota Motor Corp, declined to specify which models the Nanjing plant will manufacture, or how much money will be invested.

A cutting-edge facility could cost US$1 billion, analysts said.

Most industry observers have focused on Ford's ambitious expansion at its maiden manufacturing base in the country, in the far-flung city of Chongqing.

Ford said last year it would expand output seven-fold at its joint venture with domestic player Chongqing Changan Automobile Co Ltd.

The Nanjing plant would also be run by that venture, Changan Ford Automobile Corp Ltd, company executives said.

Years behind

Changan, which also has a partnership with Japan's Suzuki Corp, owns a minibus-making venture not far from the planned site of the Ford's new plant.

"Once we've received final approval, we'll announce what models the plant will make," said Ford spokeswoman Susan Zhu.

Car sales in China smashed the 1-million-unit barrier in 2002, for the first time, and exceeded 2 million last year.

Car sales are expected to jump another 40 per cent this year, as the economy races ahead and puts more money in consumers' pockets.

Ford sold its first Model T on the Chinese mainland in 1913, just before World War II cut short the company's China dream.

Its current facility, in landlocked Chongqing, in western China, rolled out its first cars in January 2003, years behind the competition.

That plant is bumping up annual production from 20,000 to 150,000. That trails GM, which plans to produce 766,000 units by 2006.

Volkswagen, the dominant player, wants to sell 1.6 million cars a year over a similar period.

Volkswagen controls 33 per cent of China's auto market. GM trails in second place with just under 10 per cent. Ford figures were not available.

But with around US$10 billion in investments in the auto sector over the next few years, some analysts question if Ford will ever see a return on its money.

"More cars are coming out, and we've already seen major price cuts," said Lin Wenjun, with Capital International Holdings.

"Ford's current models in China are not competitive, and it's unlikely new ones will be."

Ford and GM have been slugging it out at home and are now taking their battle to China.

Now, the smaller US automaker is fleshing out its offerings with luxury sedans and sport utility vehicles.

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

Ford's other worldwide brands include Lincoln, Mercury, Land Rover, Volvo, Jaguar and Aston Martin.

Mazda Motor Corp, of which Ford holds 33 per cent, has said it will co-operate with the US automaker as it maps out a strategy for China.

Changan Ford spokeswoman Marina Guo declined to say if the Nanjing plant will be built in concert with Mazda.

Ford, she acknowledged, is always looking for opportunities to work with Mazda.

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