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Ford plays catch-up in China's growing auto market

The company opens its fourth assembly plant in an attempt to compete with GM and VW in China, the world's leading consumer of cars.

February 25, 2012|By David Pierson, Los Angeles Times
  • Workers assemble automobile parts at the new Changan Ford Mazda automobile plant in Chongqing, China.
Workers assemble automobile parts at the new Changan Ford Mazda automobile… (Associated Press )

Reporting from Chongqing, China — Ford Motor Co.'s new factory in this smog-shrouded boomtown is the size of 17 football fields and cost nearly half a billion dollars. It's also the latest major push by a Detroit automaker in one of the global auto industry's most important battlegrounds.

The facility, which opened Friday, is Ford's fourth assembly plant in China and part of an effort to catch up with rivals, including General Motors Co., which now sells more cars in China than it does in the United States.

How Ford responds to the China challenge could help shape the company's future. The world's No. 1 car market, China posted vehicle sales of 18.5 million last year, compared with 12.8 million in the U.S.

"Now is the time we really need to set our sights to accelerate," David Schoch, head of Ford China, said in Chongqing on Friday.

Whether Ford is arriving too late to the party remains to be seen. The company's first passenger car wasn't launched in China until 2003, when VW and GM were already selling hundreds of thousands of units.

"Ford is trying to play catch-up with the big boys," said Namrita Chow, a Shanghai-based analyst at IHS Automotive. "They started much later and need to ramp up capacity and offer a much larger product line."

The good news is that Chinese consumers love foreign nameplates, even if most of those Fords, Chevrolets and Buicks are assembled in China. That's a rare success for U.S. companies looking to crack the China market. Foreign brands, which account for about 70% of sales, are considered to be of higher quality and more prestigious than homegrown Chinese vehicles.

"In China, cars are like rolling trophies," said Bill Russo, a Beijing-based senior advisor for Booz & Co. and Chrysler's former chief in China. "You have more face driving a foreign brand....This is a country where economic success is communicated by what you buy."

But Ford first must deliver more cars and showrooms for customers to find them. Ford sold just over a half-million units in China last year, well behind GM's 2.6 million and Volkswagen's 2.3 million. GM has nearly six times the number of dealerships.

Chongqing resident Alan Zhang was determined to buy a foreign model, concluding that a Chinese car "doesn't give me any status." His first choice was a Volkswagen Golf. But he gave up after a VW dealer told him he had to wait five months and pay $3,000 to join a waiting list.

Instead, he strolled to one of GM's 2,700 showrooms recently and plunked down $16,000 for a Buick Excelle with buttery brown leather interior.

As for Ford?

"Ford's not bad," said Zhang, a 28-year-old copywriter. "I just don't see that many dealerships."

In response, Ford plans to introduce 15 new vehicles into China over the next three years and boost its dealerships by nearly half to 680 showrooms. Many of those are planned for China's lesser-known cities, where competition and growth are more favorable.

Ford is not alone in seeking to boost China sales.

Chrysler Group, which sold only 23,000 vehicles in China last year, is also planning to scale up its presence in the world's second-largest economy, with plans to boost sales of its Jeeps and SUVs.

Meanwhile, GM, whose success in China has helped it regain its crown as the world's largest automaker, added an entry-level brand in China last year called Baojun to bolster a lineup that already includes the hot-selling Buick and Chevrolet.

"China represents the future growth for all automakers, including the Detroit three, whereas markets like Western Europe are mature and little growth is expected," said Michelle Krebs, an analyst for Edmunds.com. "Even North American growth won't be huge. Other emerging markets like Brazil, Russia and India are also important but based on sheer size and a constant trajectory upward of sales, China is the most important."

Had Ford beefed up its presence in China sooner, it might have reaped the full rewards of two years of staggering sales in China — 2009 and 2010 — when the total number of vehicles sold grew by 46% and 32% respectively.

The Chinese market cooled markedly last year, with vehicle sales up only 2.5% compared with 2010. But Ford's Schoch isn't fazed.

"It's not the torrid pace we saw in 2009 and 2010, but nevertheless there's very good growth opportunities," he said.

A big step came Friday with the introduction of the new Ford Focus. Assembled in the new Chongqing plant, the plucky sedan with a hatchback option also features a voice-activated control system designed to recognize some of China's many regional accents.

The car will probably sell for $17,000 to $24,000, depending on the options. It's aimed at first-time car buyers, a group that makes up 65% of the Chinese market, according to Ford.

"Ford cars are very practical," said Zhu Xiaoyan, 28, a proud owner of a black Ford Focus in Chongqing, explaining why he bought his first car. "I pay attention to the price and quality."

Ford hopes the Focus will seize ground in China in the crowded segment for small sedans, which was led last year by the Toyota Corolla, Buick Excelle and Volkswagen Lavida, according to IHS Automotive.

Despite its late start, Ford is still in a more enviable position than foreign automakers that have yet to launch operations in China, an enterprise that requires a joint venture with a local manufacturer.

Concerned about overcapacity, China's central government recently made it more difficult for its domestic automakers to partner with an international firm. That could stymie the likes of Subaru, Renault and Fiat. It also complicates Ford's plans to break free of its three-way partnership with Mazda and its local manufacturer, Changan.

"At least they're past 'go,' " Russo of Booz & Co. said of Ford. "They know what they need to do. They just have to keep investing. They're in the game."

david.pierson@latimes.com

Nicole Liu in the Times' Beijing bureau contributed to this report.

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