Ford: Global Contraction for Expansion in China

As the only one of the three US automobile giants who survived the financial crisis, Ford is looking for a new development opportunity in the overseas market. Like many other auto companies, it also attaches great importance to the Chinese market.

Ford Motor Company (hereafter Ford) is longing for more market shares in China. In addition to its third China Plant founded in September, its Asian headquarters will be moved from Bangkok, Thailand to Shanghai at the end of this year. In middle October, Ford CEO and president Alan Mulally personally flew to China to visit the three plants and look into the operation of Ford in this country.

Meanwhile, the company was speeding up in carrying out the contraction strategy in the world. Apart from closing 14 plants and cutting 30 thousand jobs in the world before 2012, the company has made a declaration that one of its brands Volvo will be sold. Before that, the company has already sold Aston Martin and Land Rover respectively to a British people and an Indian company.

This is a part of Alan Mulallys global contratction strategy. In his opinion, 30% of the global automobile market is in Asia. One fourth of it lies in Europe and Russia and the other 45% is in North America and South America. Therefore, while contracting in the global market, Ford tries every means to improve its market shares in Asia, especially in China.

However, right now Ford is far behind its competitors in the Asian market. Its market share in this continent is only 2% and the sales amount of Ford vehicles is only ranked at No.12 in China, far behind GM, Volkswagen and Toyota. It has only 226 distributors in China, while Toyota has more than 500 distributors and GM has 800 more.

For Ford, it is quite urgent to increase the market share in China and improve its performance more quickly while continuing the contraction strategy in the world.

Opportunities in China

In the first half of this year, Ford only sold 2.145 million vehicles in the world, down 30.6% year on year. But the sales amount in China kept increasing, which reached 197 thousand units and increased by 14% over the same period of last year. With the recovery of the market, Fords sales amount in China in the third quarter even saw a 79% year-on-year growth, of which the passenger cars increased by 107% in September.

Last year, the business of Ford in North America suffered a serious deterioration, but the company stuck to investing 2 billion US dollars in Asia. By now, Ford has already put in 2.3 billion US dollars in China. The amount is much higher than Ford in any other Asian countries.

In Mulallys eyes, the Chinese market possesses great potential and the performance of Ford in China will decide its role in the global automobile industry. Therefore, he decided that Ford must speed up in introducing new vehicles in China, especially the small vehicles suitable for the Chinese market. In addition, it should continuously enlarge its production capacity in China.

Now, the relevant strategies concerning Fords future are being carried out. With the establishment of the new plant with the total investment of 3.34 billion yuan (USD 489.10 US dollars) and the production capacity of 150 thousand units per year in Chongqing, Ford has made a progress in reaching the goal of increasing the production capacity in China to 600 thousand units in 2012.

“The new plant in Chongqing will be used to produce the passenger cars of Ford. The first vehicle launched will be the new Ford Focus,” said Robert Graziano, president and CEO of Ford China. It is quite possible for Ford to introduce at least 4 new models of Ford vehicles into China in the next three years.

“We hope that Changan Ford Mazda Auto (a joint venture founded by Ford, Chinese domestic automaker Changan Auto and Japanese automaker Mazda) can take 5% of the market share in China in the year of 2014. If this goal can be realized, our company can be said to be a colossus in the Chinese market,” said Xu Liuping, president of Changan Automobile.

In addition, moving its Asian headquarters to Shanghai also reflects Fords determination to revive in the Chinese market. According to a source from Ford China, this can make the information about the Chinese market transfer to the US headquarters of Ford as quickly as possible, serving for reducing the communication cost and improving the efficiency of Ford in making decisions about the Chinese market.

“This embodies the recognition of Ford for the Chinese market. It also means that Ford China can get more resources and support from the headquarters of Ford,” said the above-mentioned source.

Meanwhile, Ford is integrating the automobile manufacturing business in four regions, hoping to get rid of the previous unbalanced business distribution. The Asian market with China and India as the center is also an important part. According to Mulally, it is possible that the cars made in Asia will be sold in the USA in the future.

Breaking the Deadlock

Since taking his position, Mulally has listed the development in Asia as the primary objective. But the financial crisis forced him to put most energy in saving the US domestic market. Fortunately, the “One Ford” strategy he advocated made Ford successfully survive the financial crisis.

But this can not change the fact that Ford is in a comparatively adverse situation in the prosperous Chinese market. Despite seeing a 32% year-on-year increase in the first three quarters of 2009, its sales amount of 316.6 thousand vehicles was still far behind the competitors.

According to the data, GM sold 1.29 million vehicles in China in the first three quarters of this year, up 55.6% year on year. Volkswagen sold 1.06 million units in China in the same period, up 37%.

Conservative investment and slowness in introducing new cars are the two main factors that prevent this auto giant ranking into top auto companies in China. Actually, Changan Ford Mazda Auto wanted to set up its third plant in 2006. But the project was postponed for several times. Of all its products, only Focus is popular in China.

Fortunately, Ford has realized this point. It has begun to add its investment into China and make adjustment to the product structure. Mulally said: “In the future, 60% of Ford vehicles sold in China are small cars; 25% of them are middle-sized vehicles and the rest 15% are large ones. In addition, we will put effort in increasing the sales of Carnival in China.”

“EcoBoost and PowerShift are the two important technologies for Ford. They can help the consumers to improve the economic efficiency of fuel and reduce the emissions of the wasted gas. We will provide the Chinese consumers with the same technologies in 2010,” said Robert Graziano.

But uncertain factors still haunt the business distribution of Ford in China. Satoshi Tachikake, executive president of Mazda China, said that Mazda will not launch any products in the new Ford plant in Chongqing.

Presently, Changan Ford Mazda Autos share structure is like this: Changan Auto takes 50%; Ford takes 35% and Mazda takes 15%. In the old plants in Chongqing and Nanjing, both Mazda and Ford share the same assembly line. But this cooperation pattern will be ended in the new plant.

According to the news from Changan Auto, now the three parties are discussing the new cooperation among them. Last year, Ford decreased the shares of Mazda it took from 33.4% to 13%. Such a change motivated Mazda to develop independently.

Now, there are no final words about the share adjustment of Changan Auto, Ford and Mazda in the joint. Where will Volvo go is also a pending question. It is necessary for Ford to solve these problems if they want to have a better performance in China. But it doesnt share of assembly line with Mazda, the cost of manufacturing cars for Ford must be increased.

Despite these problems, China is still the most vigorous market for Ford in the world. “China is very important for Ford. We will continuously introduce the best technology and products into China,” said Mulally.