Ford invests $760 million for new China plant, more capacity

By Ben Klayman | April 19, 2012 6:05 PM IST

Ford Motor Co is investing $760 million to build a new plant in eastern China as part of its effort to catch up with U.S. rival General Motors Co in the world's largest auto market.

Ford said the new plant in Hangzhou in Zhejiang province will initially boost the U.S. automaker's annual capacity in China by 250,000 vehicles when production begins in 2015. Construction is expected to begin later this year.

The announcement comes two weeks after Ford said it would invest $600 million to build a third plant at its Chongqing complex in southwest China and is part of the largest and fastest expansion by the company since the 1960s in North America and Europe. Ford has now announced or begun building eight assembly and powertrain plants in Asia.

"We're looking at this more than just this quarter or this calendar year," Ford's Asia chief, Joe Hinrichs, said in an interview. "We're looking at this as how does Ford set itself up for success for the next several decades in Asia Pacific.

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"People say, 'Are you too late?' No," he added. "You get one chance to really come at the market with the full power of Ford's product portfolio, but you want to be able to look everybody in the eye and say you truly developed the vehicles for China so it does require some patience."

Ford expects industry sales in China to hit about 30 million vehicles by 2020, up from 18.5 million last year.

Ford has said that its growth plans in China are part of its effort to increase global sales by about 50 percent from 2010 to about 8 million vehicles annually by mid-decade. By 2020, it said, about one-third of its sales will come from the Asia Pacific and African regions.

Ford, which makes Fiesta, Focus, Mondeo and other sedans in China in a three-way tie-up with Chongqing Changan Automobile Co Ltd <000625.SZ> and Japan's Mazda Motor Corp <7261.T>, is a relative latecomer in China, where GM and Germany's Volkswagen AG have a sizeable lead. Ford sold 320,658 vehicles in China last year, compared with VW's annual tally of 2.26 million and GM's 2.55 million.

DON'T PANIC

"Part of the reality of what we have today is that we have a very limited product portfolio in China," Hinrichs said.

"We made a conscious decision back in 2010 not to panic and go grab all the products around the world and put them into China right away," he added. "We made a conscious decision to wait to get into the early phase of the next generation of all of those global products and...then design the vehicles with the Chinese customers in mind."

Ford will gain market share as it rolls out new vehicles, he said, adding it won't happen overnight. He suggested Ford will be closer to full strength in China in 2015.

Hinrichs said there are so many automakers in China that he expects some shakeout in the industry over time, but he declined to predict which brands may suffer. Pricing pressure in high-volume segments that started last year continues among small and mid-sized cars, he said.

To narrow its sales gap, Ford has said it plans to bring 15 new vehicles and 20 engines to China by 2015, starting with the redesigned Focus small car that is set to hit Chinese showrooms in the second quarter. The company did not disclose what vehicle it will build in Hangzhou or at the third plant in Chongqing.

Ford has imported vehicles into China since the mid-1990s and formed its first joint venture there in 2001. Ford also holds 30 percent of Jiangling Motors Corp <000550.SZ>, which makes Ford Transit vans.

The Hangzhou plant will increase Ford's production capacity in China to 1.2 million vehicles annually by 2015, including the Chongqing expansion. After opening a second plant in Chongqing six weeks ago to build the Focus models, Ford currently assembles 600,000 vehicles a year. Chongqing is home to Ford's largest factory complex outside southeastern Michigan.

By mid-decade, Ford, including both of its joint ventures, will have seven assembly plants, two engine plants and one transmission plant in China.

Ford said the Hangzhou plant in the wealthier coastal region that is the heart of the Chinese auto sector brings the company's total investment in China so far to almost $5 billion and allows it to diversify its Chinese manufacturing and also provide closer access to the country's affluent coastal cities.

By 2015, Ford has said it intends to more than double the number of dealerships in China from the 340 it had in 2010 and to double its workforce.

The rapid expansion in China led Ford to say this month that it would realize a "small loss" in Asia in the first quarter. Executives cited major investments in new products like the Focus and the new Chongqing plant, as well as the midsized Ford Ranger pickup truck in Asia and Africa. Ford said its Asian operations will be profitable for the full year in 2012, however.

Hinrichs, 45, has been viewed by many industry observers as one of the candidates to succeed Ford chief executive Alan Mulally. He declined to address the speculation, saying he was focused on his current job.

(Reporting By Ben Klayman; Editing by Ken Wills and Matt Driskill)

Copyright 2012 Thomson Reuters. All rights reserved.
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