Ford misses Cjina market goal

Ford Motor Co. is making money in China and has touted its record sales there last year, up more than 25 percent over 2006. But internal company documents obtained by The Detroit News show the automaker missed its 2007 market share target, which means Ford is growing in China but not fast enough to catch up with its competitors.
 
The Dearborn automaker's rivals broke into the market earlier and have already established their brands among China's growing consumer class. With annual vehicle sales in the Asian nation expected to equal the United States within 10 years, Ford cannot afford to lose ground.
 
"It's critical because of the size of the market," said Mike Hanley, head of Ernst & Young LLP's global automotive industry group, who said vehicle sales in China grew by more than 20 percent last year. "The growth has just been staggering. That's why capturing a portion of that market share is so important."
 
Defining its brand remains a challenge for Ford in China. The company also is still struggling to build a local supply base -- something it must do to take full advantage of the country's low labor costs. Ford's Focus compact became one of the 10 best-selling cars in the People's Republic last year, but the automaker's profit margins were slimmer than some of its competitors' because many of the parts used to build the Focus are still made outside China.
 
Ford says it is learning from marketing mistakes, convincing important suppliers to follow it to China and aggressively expanding its manufacturing capabilities in the country.
 
"We started out later, but we are really moving decisively and quickly," Ford CEO Alan Mulally said in an interview.
 
General Motors Corp., one of the first automakers to recognize the opportunity presented by China as an emerging market, sold more than twice as many cars and trucks there last year as Ford. Neither automaker breaks out its financial results for China, but GM likely made significantly more money there, too.
 
Ford had a pretax profit of $244 million last year in Asia, the Pacific and Africa. Of that, $204 million came from Japan's Mazda Motor Corp., in which Ford owns a controlling interest, and the other $40 million from Ford. GM made $744 million in Asia and the Pacific alone.
 
Nearly 7 million cars and trucks were sold in China last year, according to CSM Worldwide Inc. in Northville. Of those, 312,000 were sold by Ford, along with Mazda. Internal Ford documents show the company increased its share of the Chinese retail market from 2 percent in 2006 to 2.1 percent last year, but Ford had planned to increase its share to 2.4 percent.
 
Ford did not open its first factory in China until 2003 -- five years after GM started producing cars there and 18 years after Volkswagen AG, the market leader in China.
 
Ford opened a second assembly plant in Nanjing in September. That boosted production to about 400,000 cars and trucks a year in China, and Ford says its existing factories are capable of churning out about 600,000 vehicles if they run at maximum capacity. Ford is already scouting sites for a third plant in China.
 
John Parker, president of Ford's Asia-Pacific division, said he would like to decide this year where to build that facility, which would give Ford another 200,000 vehicles annually. Carmaker has 2 partners
 
Ford has two joint-venture partners in China: ChangAn Automotive Group, a state-owned firm controlled by the People's Liberation Army, and Jiangling Motors Corp., or JMC. Ford makes passenger cars with ChangAn and Transit vans with JMC.
 
It is also producing some components through these joint ventures and sourcing other parts from other Chinese manufacturers. As a result, about 70 percent of the components on major products like the Focus are sourced locally. Ford executives acknowledge that number needs to be higher if they are to take full advantage of the country's low-cost labor force, one of the primary benefits of doing business in China. Ford was able to reduce the cost of each Focus by about $1,000 by getting more parts produced locally.
 
Parker wants to substantially increase the amount of locally provided content in each vehicle Ford produces in China. He acknowledges that poses something of a challenge, particularly as Ford pushes for greater commonality in the parts it uses worldwide.
 
The easiest way to accomplish both goals is by convincing key suppliers in the United States and elsewhere to set up shop in China. But that is proving a hard sell.
 
Ken Duck has worked with several suppliers Ford is pressuring to open operations in China. The head of Foley & Lardner LLP's Shanghai office is an expert in Chinese business law, and said suppliers' reluctance is understandable.
 
"It's a very daunting challenge for all but the larger suppliers," Duck said. "It's a much more difficult market to succeed than it might appear. It's still a command and control economy. The government changes the laws and regulations on an almost daily basis."
 
Mazda is Ford's secret weapon
 
Ford may have been late to the game in China, but it was not alone. Except for GM and Volkswagen, most of the world's auto industry missed out on the boom years earlier in the decade when China's car business exploded.
 
Ford deserves credit for adopting a broader strategy that focuses on Asia as a whole, rather than China in particular, said Michael Robinet, vice president of global vehicle forecasts at CSM Worldwide. He said Ford has a secret weapon in China: Mazda. Mazda is not only is a popular brand with Chinese consumers, but also understands the Chinese market better than many of its competitors.
 
"They're making up some of the time they've lost," he said of Ford. "They're doing it in the right way, by integrating Mazda and relying on its expertise."
 
Nonetheless, Ford is still struggling to define the Blue Oval in China. Parker said Ford still has a "big car" image in China that is at odds with smaller vehicles it sells there. Ford is trying to play up its European small car expertise, but that sometimes creates its own problems.
 
A case in point is Ford's S-Max. The small crossover is a big hit in Europe, and the company assumed Chinese consumers would be quick to embrace it when it was launched there last year. But China is one place where full-size, body-on-frame sport utility vehicles are alive and well, and Chinese car buyers saw the S-Max as little more than a glorified people mover.
 
Ford retooled its advertising, making sure the S-Max was always depicted in outdoorsy settings, accompanied by mountain bikes, kayaks and the like. Now the vehicle is starting to sell as well as Ford initially hoped it would.
 
Ford expects the demand for cars and trucks in China to catch up with the United States by about 2015. Because of that phenomenal growth, Parker said Ford has no plans to export vehicles from China for the foreseeable future.
 
"We have to improve our footprint and improve our product entries," he said. "That's a big enough challenge. Medium or longer term, there's probably export potential. But right now, we're trying to look after China."
 
From: auto viewpoint/news

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