Bloomberg News

Ford Sees Incentives, Inventories Rising in China

June 13, 2012

Ford Motor Co. CEO Alan Mulally

Alan Mulally, chief executive officer of Ford Motor Co. Photographer: Mike Fuentes/Bloomberg

Ford Motor Co. (F:US), playing catch up in China, said slower growth there is boosting incentives and inventories in the world’s largest vehicle market.

“We have seen some increase in incentives and inventories rise in the last six months as a result of the slowing of growth,” Joe Hinrichs, chief of Ford’s Asian operations, said in a presentation yesterday at the Deutsche Bank Global Industrials and Basic Materials Conference in Chicago. “It has gotten more competitive.”

Expansion in China is part of Chief Executive Officer Alan Mulally’s push to increase annual global sales by 50 percent to 8 million vehicles by 2015 and have one-third of its deliveries in Asia by 2020. Ford, trailing General Motors Co. (GM:US) and Volkswagen AG (VOW), said it had 2.8 percent of the Chinese market last year. It’s spending $4.9 billion on nine new factories in Asia and introducing 15 new models in China by 2015.

“It’s going to take some time and some marketing dollars to get Chinese consumers to look closer at Ford,” said Jeff Schuster, senior vice president of forecasting at researcher LMC Automotive in Troy, Michigan. “It’s still a ways down the road.”

Ford sales in China rose 8 percent in May to 48,608 passenger cars and commercial vehicles, the company said in a June 7 statement. That followed a 14 percent sales decline in the first quarter to 121,393 vehicles as GM and VW made gains in the slowing Chinese market.

Ford is debuting three sport-utility vehicles, including the Explorer, and the Focus compact car in China this year. Sales of almost 13,000 Focus models in May enabled Ford’s passenger-car joint venture, Changan Ford Mazda Automobile Co., to achieve record sales of 34,550 Ford-brand cars last month.

Capacity Increases

Ford production capacity in the Asia Pacific and Africa region will increase to 2.92 million vehicles by 2015, from 1.48 million last year, Hinrichs said. Ford expects to have 960 dealers in China by 2015, from 582 last year, he said.

“China is not only the largest market in the world, it’s the largest growth market,” Hinrichs said. “With 2 billion potential customers, you don’t need many of them to buy a car to have a big industry.”

Growth has slowed in China over the last year as the government eased incentives to avoid inflation, he said.

“Clearly, since the spring of last year, the Chinese industry has slowed down,” Hinrichs said. “But it is a profitable market and we believe it will continue to be.”

New Beachhead

Ford, the second-largest U.S. automaker said in April it’s establishing a beachhead along China’s affluent east coast with a $760 million assembly plant in Hangzhou that will double its output in the country to 1.2 million vehicles annually. The factory, set to open in 2015, probably will produce upscale vehicles, such as SUVs, that Chinese consumers in that area favor, Schuster said.

“They’re a bit late to the game,” said Michael Robinet, managing director for industry consultant IHS Automotive in Northville, Michigan. “But they have enough flexibility, especially with this third facility in China, to focus resources on the markets that are actually going to expand.”

Ford slid 1.9 percent to $10.30 at the close in New York.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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