In Depth

Alan Mulally's Asian Sales Call


Since its earliest days, Ford Motor has missed opportunities in Asia. In 1924, Henry Ford declined an invitation from China's first president, Sun Yat-sen, to help the country build an auto industry. Even in the 1990s, when Deng Xiaoping's reforms gained momentum and foreign investment poured into China, Ford hesitated; it didn't make cars there until 2003. In India, too, the company shunned a government request to create a manufacturing hub in the 1930s. Only in 1996 did Ford autos roll off an Indian assembly line.

None of that history fazes Ford CEO Alan Mulally, who is not about to let his predecessors' missteps keep him from seizing the day. "Now we are here," he declares while visiting the Dongchang Ford dealership on Jinshajiang Road in Shanghai recently. Climbing behind the wheel of a Fiesta sedan, he points to the yellow stitching on the black leather seat. "See the trim? Chinese really like the stitching," he says. The compact comes with a sunroof—a must in a country where many people smoke. Launched in March 2009 with a starting price of $11,700, the Fiesta is the type of car that used to be thought of as "cheap and cheerful," says Mulally, 64. Ford designed it with Chinese car lovers in mind. They "are really discriminating," he notes. "[Chinese] want their small cars to be really neat."

The Fiesta is one of two new weapons in Mulally's battle to reverse Ford's disappointing performance in Asia. The other is the Figo, a $7,700 hatchback developed over two years for India and launched this past March. Mulally, a former Boeing executive who nurtured that company's relationship with China before joining Ford in 2006, is hoping the new models will change the odds for Ford in the region. The company controls a mere 2.6% of the China auto market, the world's largest, and only 2% of India, Asia's No. 3 after China and Japan. "Over time, we will gradually, continually grow our share," he predicts.

"HIGHEST PRIORITY"

While Mulally can take credit for avoiding bankruptcy and a government bailout last year, he knows that to thrive, the automaker has to get serious about improving its game in Asia. Soon, according to market researcher J.D. Power & Associates (MHP), a third of the world's auto sales will come from the region spanning China, India, Northeast Asia, Southeast Asia, Australia, and New Zealand. Today, that region accounts for just 11% of Ford's sales, vs. more than 25% for General Motors (GM). "The market is going to be led by Asia-Pacific," Mulally says. "I have made it the highest priority for Ford."

He has invested over $2.2 billion in Asia since coming to the company. That includes a $500 million expansion of a plant in Thailand that Ford and joint venture partner Mazda opened last year to make Ford Fiesta and Mazda2 compact cars. (Ford owns 13% of the Japanese company.) Mulally's chief concern is China and India, which by 2015 could account for a quarter of the world's auto sales. "Apart from the U.S., these two are the defining markets for global success," says Mohit Arora, executive director of J.D. Power Asia Pacific. "If Ford is looking for a strategy for survival, these two markets are absolutely essential," he adds.

The automaker is making up for lost time and doubling down on its core brand. On Mar. 28, Ford agreed to sell its Volvo unit to China's Geely for $1.8 billion—cash that could help fund its Asia expansion. The deal followed Mulally's meetings in the region with business and government leaders, including Chinese Premier Wen Jiabao. In December, Ford moved its Asia-Pacific headquarters from Bangkok to Shanghai, a shift made to emphasize the company's commitment to China. Last September, Mulally traveled to Chongqing in southwestern China to break ground on a new $490 million auto factory, Ford's third in the country. The same month, he visited a new $500 million plant in the southern Indian city of Chennai.

Ford's investments have boosted its capacity by 50% in China and 100% in India since 2007. (It can now build 450,000 cars a year in China and 200,000 a year in India). That's only the beginning of the growth Mulally wants to see. "China is growing so fast that our challenge is to maintain market share just because of our capacity limitations," says Lewis Booth, Ford's chief financial officer. To remain competitive, Ford is trying to use more local suppliers. The company is sourcing 85% of the Figo's components from Indian companies and aims to purchase at least 90% of its parts in China locally, says Jeffrey Shen, CEO of Changan Ford Mazda Automobile, the company's manufacturing joint venture in Chongqing.

Mulally is leading an expansion of Ford's dealer base as well. The company plans to add at least 70 outlets in China this year, bringing its total to 310. In India, Ford expects to increase its 167-strong dealer network by 10% to 15%. Joseph R. Hinrichs, president of Ford Asia-Pacific, calls Mulally's Asia push "an aggressive growth strategy."

When Mulally left the dealership in Jinshajiang Road, the magnitude of his challenge came into view. Flanking the Ford dealership on the bustling strip were rivals selling Volkswagen, Buick, Hyundai, Citroën, Lexus, Subaru, and Mazda—most of whom outsell Ford in China. Tied for No. 11 in China with local companies Geely and FAW, Ford trails not only market leaders such as VW and GM but also second-tier players such as Japan's Suzuki, says J.D. Power. Suzuki is the top player in India, where its Maruti Suzuki subsidiary dominates the market with a 53% share. "The competition is quite fierce now," says Qiu Wuwei, deputy general manager of the Dongchang Ford dealership, which was decorated with hanging lanterns for the Chinese New Year and attracting a handful of customers on a quiet Thursday morning.

Some of the people kicking tires were mostly curious; Chinese aren't familiar with Ford and tend to be wary about buying American. It's like buying a Geely in Galveston, a Chery in Chippewa Falls. It isn't usually done, at least not yet.

FAMILY AFFAIR

Still, business has been picking up, thanks to the Fiesta. Ford sold 47,000 Fiestas and scored a 55% increase in its passenger car sales, to 316,000, in 2009. At the Dongchang dealership, sales are so brisk that Qiu has hired seven new salesmen. Some 70% of Ford's customers are first-time buyers, and often the whole family comes along to shop. Harriet Luo, 33, a teacher in Shanghai, brought her husband, parents, and in-laws when she checked out cars at the dealership recently. She had already considered models by Toyota (TM), Volkswagen, Hyundai, and Chery, when she settled on a Ford Focus, the first car for anyone in the family. "I'm very excited. I couldn't sleep well last night," she says, as she waits to drive her new car off the lot.

Ford executives concede they face a problem selling Chinese on their brand: There aren't enough choices. The company's offerings are limited to the Fiesta, the midrange Focus, the top-end Mondeo, and the S-Max minivan. By 2013, Ford aims to add four more models. "Every year or so," Mulally promises, "we're going to bring out another vehicle for Chinese customers."

Ford is crafting a similar strategy for India, where the company plans a new model every 12 to 18 months. For now, Ford is counting heavily on the Figo. The car was designed for a hypothetical twentysomething Indian named Sandeep. He works in IT, finance, or another service industry and tools around on a motorcycle. But now that he is enjoying the first fruits of affluence, Sandeep wants four wheels. "There are huge numbers of people wanting to move off their motorbikes," says Ford India General Manager Michael Boneham, who calls the Figo a "game changer." Some 70% of cars sold in India are in the same size and price range. "We haven't been there until now," he adds.

Ford may be changing its game too late. VW put its compact, the Polo, on the market in February. GM launched its new Chevy Beat in January, two months before Ford unveiled the Figo. A small sedan that starts at $7,600, the Beat is so popular there's now a two-month waiting list for it in India, says GM India President Karl Slym. To keep up with demand, the company has added a second shift to its factory near Pune in western India. GM sold 69,000 cars in India vs. Ford's 29,500 last year, and Slym expects growth of 50% in 2010.

In China, too, GM plans 10 new models this year. VW, the market leader, aims to invest $5.4 billion over the next three years and launch seven locally-produced models in 2010. China is a "war of attrition" for the automakers, says Michael Dunne, president of Hong Kong-based auto consultant Dunne & Co. "It's going to be a grind in the next few years, with everyone clawing for more market share. The companies with the deepest pockets will be the ones left standing," he adds. Dunne predicts Ford will have to invest at least $1 billion in China to double its capacity and $500 million in India to lift capacity by about 75%.

Thanks to Mulally's efforts to shore up Ford's finances, the company's resources to spend in Asia are growing. After losing $30 billion from 2006 through 2008, Ford earned $2.7 billion on sales of $118 billion last year, and analysts expect profits of $3.6 billion in 2010. "We started a little late here," Mulally acknowledges. When it comes to Asia, "clearly, the importance cannot be overstated."

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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