BUSINESSWEEK ONLINE : JULY 17, 2000 ISSUE
INTERNATIONAL BUSINESS

Ford Finally Gets to Roll Out Cars in China
It's close to a deal to make family sedans in the heartland

Ford Motor Co. (F) Vice-Chairman W. Wayne Booker was on a mission. After attending the Beijing Auto Show in June, he flew to southwestern Chongqing with Ford's new senior consultant, James R. Sasser, a former U.S. ambassador to China. The goal: use Sasser's connections and Ford's position as the world's No. 2 auto maker to finally win the right to make cars in China.

The visit, which included talks with the mayor and local auto officials, seems to have paid off. Ford is expected to announce a deal to make affordable family sedans in China's heartland, a market with more than 100 million people. The joint venture, with Chongqing Changan Automobile Co., has received preliminary approval from China's State Economic & Trade Commission, officials at Ford, Changan, and in the Chinese government told Business Week. ''As we look at the long-term projections and the maturation of the customer base, we believe it will be absolutely imperative to have a significant presence in China,'' says Keith Davey, Ford's director of business strategy for Asia. ''We think this is prime real estate.''

Such a deal would be a major victory for Ford, which has suffered a number of setbacks in Asia. Ford has lost out to rivals, including General Motors Corp. (GM), on other China carmaking ventures. So Ford's investments in China had been limited to making parts and light trucks. Now, with China poised to enter the World Trade Organization, the anticipated opening is creating new opportunities for companies so far unable to crack markets in China. Ford's new venture, coming on the heels of its bid to purchase South Korea's Daewoo Motor, signals a new push by Ford to catch up to its competitors in Asia, expected to be the hottest market of the next decade.

MORE FREEDOM. As Ford has found out, China is loosening its stranglehold on the country's 120 auto makers. Previously, Beijing played matchmaker between foreigners and local companies. But now, Beijing is giving local car companies more latitude in finding foreign partners. Carmakers now can forge their own ties and then go to Beijing for approval. Bureaucrats had also largely restricted foreign ventures to the high-end vehicle market, leaving the mass market to locals. But Beijing is now letting foreigners already tied with Chinese partners, including Toyota (TOYOY) and Volkswagen (VLKAY), make affordable sedans. That market--for $10,000-to-$15,000 cars--is expected to be China's fastest-growing in the next decade. ''By 2005, two out of three cars in China will be in that price range,'' says Michael Dunne, president of Automotive Resources Asia, a consultancy with offices in Beijing and Bangkok.

Ford's decision to invest in the west, in the Sichuan province region, also may give it a strategic advantage over competitors concentrated in the more saturated coast. ''If you look 10 years out, it's destined to be one of the most important automotive bases in China,'' says Dunne. Neither Ford's total investment, expected to be several hundred million dollars, nor its exact model has been approved. But analysts say Ford's car could be based on its Ikon model made for emerging markets. The car would sell for $12,000 to $15,000 and be available in China by 2002.

As China's third-largest auto maker, Changan has a good record. Its reform-minded manager is known for product quality and employee performance. Profits were $6.5 million last year, up 323%, on revenues of $651 million. A subsidiary of Norinco, a company with Chinese military connections, Changan employs some of China's best engineers.

But competition in passenger cars is heating up. Ford will have to move quickly. Toyota plans to start producing sedans based on its $12,000 Yaris in coastal Tianjin early next year. Volkswagen plans to make similarly priced Polo and Bora cars in Shanghai by 2002. GM is likely to introduce its Opel Corsa, which is more affordable than the Buick it makes in Shanghai.

There may be other snags ahead. Changan already has a foreign partner, Suzuki Motor Corp., and produces the $6,000 Alto minicar. Changan may find it difficult to balance resources between the two. Plus, past experience of investors in China has shown it can take years before foreign companies can convert deals into cars in local showrooms. But for the world's carmakers, the lure of the Chinese market is too powerful to ignore.

By Dexter Roberts in Chongqing, with Alysha Webb in Shanghai

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