Ford Pushes Into China's Interior

The Wall Street Journal, August 26, 2012

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By MIKE RAMSEY

Ford Motor Co., a latecomer to China's booming auto industry, is counting on businessmen like Feng Shouming to help the company catch up to more established rivals General Motors Co. and Volkswagen AG.

Later this month Mr. Feng will open his seventh Ford dealership in Wuhan, a city of 10 million people in China's interior, a vast region that still offers great potential for smaller players like Ford.

Much of the wealth that China's rapid industrialization has created is located along the country's eastern coast, and car buying has skyrocketed around prosperous cities like Shanghai and Hangzhou. But now the Chinese government, in an effort called "go West," is employing economic policies designed to push investment toward the center and west of the country, and bring more prosperity to regions still dominated by farming culture.

Ford is betting that push will continue the boom in car buying in places like Wuhan, even as growth in auto sales moderate along the coast.

"The automobile industry here is very young and although it is the biggest in the world, it's only been a thriving industry for a decade," said David Schoch, chief executive officer of Ford China.

While not giving up on wealthier coastal provinces, Ford is concentrating its efforts on the dozens of cities in central China with populations of 500,000 to five million people, Mr. Schoch said. "We see a tremendous growth opportunity in the middle and the west."

To make the strategy work, however, Ford needs people like Mr. Feng who are willing to team up with a company that isn't yet up to full strength in China.

In an interview, Mr. Feng said business has been tough, in part because Ford only offers six models in China—the Focus compact and two other small cars; a sport-utility vehicle and a small wagon; and the Mondeo sedan.

In Wuhan, Ford faces a strong local state-owned competitor, Dongfeng Motor Corp., which has a full line of cars, vans and SUVs through partnerships with Nissan MotorCo., Honda Motor Co. and Peugeot SA.

"We just need to hang in there," Mr. Feng said by telephone. "We have every faith and hope in the next few years."

The good news is that Ford is adding a seventh model, the Kuga compact SUV, later this year. On Monday, Ford Chief Executive Alan Mulally will visit a Ford plant under construction in Chonqqing, which is located more than 1,000 miles west of Shanghai and is the manufacturing hub of Ford's China operations.

The factory will be Ford's third in China, part of a $5 billion investment plan it kicked off in 2006. The company is also building an engine plant and a transmission plant at the Chonqqing site.

When those three plants—plus a fourth being built in Hangzhou in the country's east—are operating, Ford will be able to build 1.2 million vehicles in China, which would equate to about 15% of the auto maker's projected global production in 2015.

Because of the heavy investments, Ford's China operations are losing money. Mr. Schoch said results will improve in the second half of 2012 as Kuga goes on sale.

Mr. Schoch added that he thinks Ford is "well positioned" in the hinterlands of central China.

Yet Ford isn't alone in pursuing growth in these regions. Other auto makers are also putting more focus on China's central and western provinces, too, especially now that some major coastal cities have become so overrun with cars and trucks that they are limiting registrations of new ones, said Bill Russo, an auto consultant in Beijing.

"It is only natural that the auto makers are starting to look at how to capture this coming growth. It's not just Ford," Mr. Russo said.

China has already surpassed the U.S. as the world's largest auto market. Ford expects China's overall auto sales to increase from 18.5 million new cars this year to around 30 million by 2020.

There are about 85 vehicles per 1,000 people in China. The U.S. has about 800 vehicles per 1,000 people.

Last year Ford grabbed about a 2% share of the Chinese market, compared with 7.2% for GM brands and 12.9% for Volkswagen. Toyota Motor Corp., Hyundai Motor Co. and Chinese companies such as Geely Automobile Holdings Ltd. are all ahead of Ford, too, according to LMC Automotive.

—Yoli Zhang in Beijing contributed to this article.