Wandering China

An East/West pulse of China's fourth rise from down under.

Ford to Build Plant in China to Bolster Global Sales [New York Times]


Ford forges ahead on the Chinese automotive bandwagon with the largest factory expansion in 50 years.

This however, comes at a time of increased competition, with Japanese, European and American automakers plus fast-growing, low-cast local manufacturers. Can China’s market handle the intensity? After a decade of double-digit growth, Chinese auto sales rose just 2.5 percent in 2011. The first quarter of this year was the first decline in seven years when indicated sales were down 1.3 percent.

President of Ford’s operations in Asia howver indicates that ‘Ford had forecast in 2010 that the Chinese market would grow at a compound annual rate of 5 percent for the next decade.’

‘Until early this year, Ford had an annual manufacturing capacity in China of 450,000 cars, in what has become the world’s largest market, with annual sales of 18 million vehicles. But by 2015, it plans to have an annual capacity of 1.2 million cars.’

From Ford’s media site, Soundbites: New Hangzhou Assembly Plant in China 

– – –

Ford to Build Plant in China to Bolster Global Sales
By KEITH BRADSHER
Source: New York Times, published April 19, 2012

BEIJING, CHINA — Ford Motor has chosen China for its largest factory expansion program in a half century, announcing on Thursday that it would build a $760 million assembly plant in Hangzhou, two weeks after announcing another $600 million plan to expand an assembly plant in Chongqing and less than six weeks after completing a third assembly plant in Chongqing.

Ford is late to China’s party, and its new factories will open in a slowing, increasingly competitive Chinese market. Rapid factory construction in China is a throwback to the company’s last big factory building campaign in the 1950s, when models like the Thunderbird captured the hearts and wallets of young Americans and when Ford was racing to increase capacity in postwar Europe, Australia and South Africa.

Auto sales in China rose just 2.5 percent last year, after a decade of double-digit annual growth. Sales were down 1.3 percent in the first quarter of this year from a year earlier, the first quarter to show a decline in seven years, according to official figures.

Ford’s ambitious investment plans in China, where it holds a little over 2 percent of the market, represent “a sharp contrast to the old Ford in China, which was tentative, thin on products and short on money for investment,” said Michael Dunne, a longtime auto consultant in China.

Ford’s planned expansion comes as a long list of Japanese, European and American automakers are also building more factories and face competition from fast-growing, low-cost Chinese manufacturers.

Joe Hinrichs, the president of Ford’s operations in Asia, the Pacific region and Africa, said in a telephone interview that Ford had forecast in 2010 that the Chinese market would grow at a compound annual rate of 5 percent for the next decade, and the company still believes this despite slower growth last year. Ford’s capacity additions will come faster, meaning that it needs to take sales from other manufacturers as well to keep its new factories full.

The Chinese market has become more competitive in recent months as Japanese automakers have ramped production back up after suffering parts shortages for many months following the tsunami last year. But Mr. Hinrichs said that “it’s a profitable business in China and we do expect to grow our market share in China.”

Automakers tend to grow most rapidly when they extend their model lineups to start offering cars and other vehicles in market segments in which they have not previously competed. Because that is part of Ford’s plan in China, their market share probably will increase, said Lin Huaibin, an analyst in the Shanghai offices of IHS Automotive, a global consulting firm.

As auto executives from around the world prepare to gather on Monday for media days at the Beijing auto show, the talk is also likely to revolve around another problem that has started to surface in the Chinese market: rampant discounting at dealerships.

Dealers even promoted discounts off the retail price early this year on large luxury models like the Mercedes S-Class, although the discounts are now becoming harder to find as the Chinese government began easing in March its curbs on bank lending.

Ford’s late start in the Chinese market has given it another liability: most of its operations are far from the coast in western China, making it much harder to export cars someday if the Chinese market cannot absorb them.

The company’s sprawling factories in Chongqing, owned through a joint venture with one of China’s largest state-owned weapons makers, also cannot easily import or export auto parts.

The inland operations are also far from China’s wealthiest cities, which tend to be close to the coast, although inland cities are also starting to become more prosperous as well.

Until early this year, Ford had an annual manufacturing capacity in China of 450,000 cars, in what has become the world’s largest market, with annual sales of 18 million vehicles. But by 2015, it plans to have an annual capacity of 1.2 million cars.

Ford opened early last month what is essentially a new assembly plant in Chongqing with an annual capacity of 150,000 cars, although for regulatory purposes it is an extension of an existing assembly plant that is a 10-minute drive away. Two weeks ago, Ford announced it would increase its capacity at the new assembly plant by 350,000 cars a year by expanding the new operation and by building yet another assembly plant next door.

Ford said on Thursday that it would build a state-of-the-art assembly plant in Hangzhou with an annual capacity of 250,000 cars.

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Filed under: Automotive, Chinese Model, Domestic Growth, Economics, Finance, Influence, Infrastructure, International Relations, New York Times, Soft Power, Transport, U.S.

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