Ford 's Lincoln Launch in China `Necessary,' Russo Says

Bloomberg TV, August 29, 2012

Bill Russo, Beijing-based president of Synergistics Ltd., talks about Ford Motor Co.'s introduction of the Lincoln luxury brand to China.  He also discusses the outlook for China's economic growth and its impact on the global auto industry with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Ford to Bring Lincoln Brand to China to Challenge Cadillac, BMW

Bloomberg News, August 28, 2012

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Ford Motor Co. (F), lagging behind General Motors Co. (GM) and Volkswagen AG (VOW) in China, will add the Lincoln luxury brand to its lineup of vehicles in the country as part of the company’s biggest expansion push in half a century.

The luxury vehicles will be available in China in the second half of 2014, the Dearborn, Michigan-based carmaker said in a statement today. The company will begin recruiting dealers for the marque in the fourth quarter of this year.

Ford follows GM in stepping up efforts to compete in China’s luxury-vehicle market, a segment that researcher IHS Automotive forecasts will more than double and surpass the U.S. by the end of the decade. Volkswagen’s Audi, Bayerische Motoren Werke AG, and Daimler AG (DAI)’s Mercedes-Benz currently dominate, accounting for more than three-quarters of high-end cars sold in the country.

“The decision to bring a luxury brand to China is a bold decision but it’s a necessary decision,” said Bill Russo, a Beijing-based senior adviser at Booz & Co. “If you’re a global company with global brands you have to have global brands in China.”

Ford is counting on China to help revive growth of its premium nameplate, which has seen deliveries tumble more than 60 percent since their peak two decades ago. Ford, which in 1922 bought the brand named after former U.S. president Abraham Lincoln, plans to unleash seven new Lincoln models -- including the glass-roofed MKZ sedan -- by 2015 as it seeks to attract younger, wealthier customers.

‘Next Step’

“Lincoln in China marks the next step in our expansion in Asia and our commitment to serving customers in the luxury market,” Chief Executive Officer Alan Mulally said in a statement today. “Lincoln is an important part of our plan.”

Ford is introducing more models and building five factories in China, including a $760 million assembly plant in Hangzhou and a $600 million facility in Chongqing, to double its annual production capacity in the country to 1.2 million passenger vehicles. The expansion will help Ford increase global sales to about 8 million vehicles by mid-decade, up about 50 percent from 2010, according to the company.

The automaker has reason to expand. Ford only accounts for 2.4 percent of the country’s light-vehicle market, versus VW’s 19 percent and GM’s 10 percent, according to data from industry researcher LMC Automotive. Ford’s share of the more lucrative luxury segment is practically non-existent.

That’s because Audi, BMW, and Mercedes-Benz dominate by accounting for 76 percent of the Chinese luxury market, according to data from research firm LMC Automotive. The German automakers have succeeded partly because they tailored their cars to Chinese consumer preferences, selling long wheelbase versions of traditional sedans to cater to the need for more legroom in the backseat.

Cadillac Sales

GM, the biggest U.S. carmaker, is seeking to loosen their grip by renewing a push for its Cadillac vehicles in China. GM said in April it plans to bring in more Cadillac products, increase local production and sales outlets in China to boost sales five-fold and match U.S. deliveries by 2020.

At Ford, Mulally is seeking to revitalize the aging Lincoln, which counts 65-year-olds as its average buyers. The brand’s 85,643 vehicles sold in the U.S. last year was a 63 percent slide from its peak in 1990.

Chinese Consumers

Ford plans to target Chinese consumers with more “individual and personalised motor cars” and bank on Lincoln’s nearly 100-year-old heritage to expand sales, Jim Farley, the auto company’s global marketing chief, said in today’s statement. “In China, the emerging luxury buyers are younger and fast-changing, and they have a strong desire to understand and appreciate the heritage of a brand.”

Ford’s expansion in China will help the company more than double its market share in the country to 6 percent in the next five years and generate income to $1 billion by 2016 from about $137 million in 2011, according to estimates at CLSA Asia- Pacific Markets.

Ford’s Lincoln announcement comes a day after it said the National Development and Reform Commission approved Ford’s application to have a separate venture with Changan Automobile Co. instead of the current three-way ownership with Mazda, paving the way for the company to increase control of its China expansion and product rollouts.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Ford Says It Got Clearance To Split China Venture With Mazda

Bloomberg News, August 27, 2012

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Ford Motor Co. (F) said it received approval from China’s top economic planner to split its venture in China with Mazda Motor Corp. (7261), paving the way for the U.S. automaker to increase control of its expansion in the country.

The National Development and Reform Commission approved an application for Ford to have a separate venture with Changan Automobile Co. instead of the current three-way ownership structure with Mazda, Ford Chief Executive Officer Alan Mulally told reporters in Chongqing, China today. The plan still needs to be approved by two ministries, Ford said in a statement.

The separation would restore Ford’s ability to have an equal say as its Chinese partner for the first time since 2006, when the U.S. company transferred a 15 percent stake to then- affiliate Mazda. The Dearborn, Michigan-based automaker has sought to break up the China venture after selling down its stake in Mazda in 2008 to raise cash.

“For Ford, they won’t have to think of Mazda and will have more freedom in making decision for future development in China,” said Lin Huaibin, a Shanghai-based analyst with industry researcher IHS Global Insight. “They will be able to make full use of Chongqing as a strategic production base in western China and they can focus on developing their own products suitable for the Chinese market.”

Increasing its stake in the China venture to 50 percent would allow Ford to book more revenue from car sales and parts, according to Bill Russo, a Beijing-based senior adviser at Booz & Co.

China Expansion

Mulally was in Chongqing to attend the groundbreaking ceremony for Ford’s third passenger-vehicle assembly plant in the city, which would add annual capacity of 250,000 vehicles a year when completed.

The reorganization is still subject to approval from the Ministry of Commerce, State Administration of Industry and Commerce and the Ministry of Industry and Information Technology, according to Ford.

Ford this year has disclosed moves to add production output in China, including plans to build a $760 million assembly plant in Hangzhou. The company today signed a letter of intent to expand research and development in the country.

“We’re very pleased with the restructuring and the way its going,” Mulally said today. “We have approval from the NDRC and we’re proceeding through the regulatory process, so we’re very appreciative and encouraged.”

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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.

China car sales continue to grow despite slowing economy

China Economic Review, August 10, 2012

Sales of passenger cars in China posted strong gains last month, despite the country's slowing economy, Financial Times reported. Passenger car sales increased 11% in July, typically a weak month for the auto industry. The growth of China's car market has slowed dramatically as the auto subsidies introduced as part of the country's 2008 stimulus package expire, but it remains comparatively strong in the face of weakening economic conditions. The sustained expansion of the market has been driven by "continued GDP growth and urbanization which increases the number of middle class consumers that can afford to buy cars,” said Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China. But this hasn't stopped the build-up of dealer inventories in China which could trigger a price war, said Shaun Rein of China Market Research in Shanghai.

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China car sales defy broader slowdown

The Financial Times, August 9, 2012

Passenger vehicle sales in China have continued to resist the mainland economic slowdown, rising 11 per cent year on year in July – traditionally a weak month for the motor industry.

Deliveries of passenger vehicles for the first seven months of the year rose 7.5 per cent to 8.74m units, the China Association of Automobile Manufacturers said on Thursday.

“The market has remained resilient in the face of tremendous economic uncertainties and elimination of [tax] incentives,” said Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China. “This comes from the fundamental drivers of demand which include continued GDP growth and urbanisation which increases the number of middle class consumers that can afford to buy cars.”

China’s car market – which grew 45 per cent in 2009 and 32 per cent in 2010 – has slowed dramatically since the end of tax incentives introduced as part of the government’s 2008 stimulus package.

In contrast, Indian vehicle sales showed signs of a marked slowdown in the face of weakening economic conditions. Figures on Thursday from the Society of Indian Auto Manufacturers showed sales of passenger cars in Asia’s second-largest emerging market rose 7 per cent in July from the month before, below analysts’ predictions.

“The economy in general is suffering, while potential purchasers of personal vehicles have been hit by high interest rates and high petrol prices have also hit sentiment in the market,” Vishnu Mathur, director-general of SIAM, told the Financial Times.

High dealer inventories are prompting some consumers in China to hold off on purchases, hoping for more discounts, said Shaun Rein of China Market Research in Shanghai, whose firm recently interviewed car buyers.

“There is a danger of disproportionate price decrease that could lead to a wider risk of a price war,” noted Klaus Paur of Ipsos consultancy in Shanghai.

July’s data masked significant differences among automakers. Nissan said its sales fell in the month for the first time since January. Nissan competes with other Japanese brands that were hurt badly by last year’s earthquake-related supply disruptions, which no longer exist, noted Mr Russo. “Toyota has taken back a significant share of Nissan’s gain last year.”

Meanwhile, GM sales were up 15 per cent on year, helped by a 26 per cent rise in sales of Wuling mini commercial vehicles that are sold mainly in lower-tier markets.

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Home Run: Domestic Automakers Set To Benefit From New Regulations

Silkroad, August 2012

From the in-flight magazine of Dragonair

Silkroad government procurement from Synergistics Limited