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By Norihiko Shirouzu and Ben Klayman
SHANGHAI / DETROIT (Reuters) – Ford Motor Co.
At first glance, the plan announced by Ford last June to combine the sales channels of vehicles manufactured with Chongqing Changan Automobile Co <000625.SZ> and Jiangling Motors Group made sense. This would promote operational efficiency in China's loss-making activities and is common practice in most other markets.
But he ignored the realities on the ground. Chinese automakers, often in 50/50 partnerships with foreign automakers, are reluctant to lose control of their sales decisions, rarely willing to trust each other and loyal to local provinces, which are extremely competitive in their quest to economic growth and tax revenues from the sale of vehicles. .
"I would say that there is a lack of deep understanding about how relations work in China," said Anning Chen, who in October became Ford's third Chinese chief in two years, during which time he was in the dark. an interview in Shanghai.
This is the first time that Ford, faced with a multitude of problems in China that do not present a quick fix, has revealed the fall of the plan – a decision also motivated by a sharp slowdown in Chinese economic growth in the middle of the war with the United States. as well as deeper losses at dealerships.
Many large foreign car manufacturers have 2 or 3 partners in China, involving different marketing and distribution strategies for each partner. Ford is the only known to have tried to combine sales channels for mainstream cars.
Ford's other efforts in China include launching 30 new or significantly restructured vehicles over the next three years, reducing the number of temporary workers in factories, hiring more local Chinese, and prioritizing profits. on the growth of market shares.
Capacity reductions as Ford and its partners embark on a "resizing" of their plants are also likely, Chen said.
A recovery would help relieve the US automaker, which is also striving to stop losses in Europe through the closure of factories and layoffs. This would also mitigate the risk of Ford becoming a marginal player in China – a market with annual sales of some 28 million vehicles that many foreign automakers now consider the most important.
IMPLOSION OF SALE
The decline in Ford's sales is unprecedented for a major global automaker in China. After peaking at 1.08 million vehicles in 2016, sales began to weaken in late 2017, then nearly halved last year to 504,488 units, according to consulting firm IHS Markit.
IHS expects Ford sales to fall further to 382,882 this year, while LMC Automotive expects Ford's market share in China to drop to 1.4 percent from 3.8 percent in 2016.
(Graphic: Collapse of Ford sales in China – https://graphics.reuters.com/FORD-MOTOR-CHINA/0100B273150/FORD-CHINA.jpg)
Ford has publicly blamed its blame on a range of aging models, but company officials familiar with the case have said that the termination of relationships with its joint venture partners and dealers as well as the mistakes of the management teams were the most important factors at stake.
For now, Ford's main goal in China is profitability, said Joe Hinrichs, president of Ford Automotive, at the company's headquarters in Dearborn, Michigan, at Reuters.
"You can be a profitable company in China with a relatively small market share because of … the size of the market," he said.
As a step forward, Hinrichs pointed out that dealer inventories were at their lowest level in 18 months and that in the first half, losses in China before interest and taxes amounted to $ 283 million compared to the same period last year. Previous year.
"It's not a five-year trip," he said, but declined to be more specific when asked when the Ford unit was in China is expected to return to profitability.
Mr. Hinrichs, who took the lead in Ford's auto business in May, led its Asia-Pacific operations from 2009 to 2011, a period of strong growth for the Chinese automaker.
Chen, an American citizen who grew up in China and is fluent in Mandarin, joined Ford in October from Chery Automobile Co. He is however a Ford veteran, having worked for the company for 17 years, mainly in Dearborn, before join Chery.
TERRITORIAL ON TERRITORY
The uneasy relationship between the joint venture partners and Ford has highlighted the dissatisfaction with a cross-distribution arrangement for a small sport utility vehicle, the Territory. It was developed with JMC and sold not only by the sales network of JMC Ford, but also by Changan Ford.
This approach has angered Changan, who was wondering why he was not the development partner and who, as the largest public company, considers himself much more ambitious than a regional company such as JMC said officials of the Ford company.
JMC, meanwhile, was unhappy that the product was shared with Changan, added the officials, not wanting to be identified because they were not allowed to publicly express themselves on the issue.
Changan Ford, which manufactures the Ford EcoSport SUV, the Focus small car and the Mondeo sedan, did not respond to a request for comment. JMC, which builds the territory and vans Transit and Tourneo, declined to comment.
Although Ford had previously described the arrangement as successful, Chen was cautious, saying such deals were unlikely as they could create inconsistencies in dealer services.
"We want to make sure that the distribution networks are directly confronted with different market segments and customers, and we do not want to mix them up," he said.
Ford is also aiming to build more cars on the local market, which will improve relations with its national partners and help fill its underutilized assembly plants. Cars likely to be built in China include the redesigned Ford Explorer and Lincoln Aviator SUVs.
Ford has only used 24 percent of its production capacity in China to build 1.6 million vehicles in 2018, according to US consulting firm AlixPartners. Normally, rates of about 70% to 75% are considered the breakeven point. Ford declined to comment on its capacity in China.
The PSA group, also facing China at a capacity utilization rate of 26% in 2018 according to AlixPartners, is closing a plant, selling another one and cutting thousands of jobs.
Hinrichs said, however, that Ford did not feel "enormous pressure" to close one of its five factories in China, since they are already paid.
Instead, by locally manufacturing many of the upcoming new products, Ford will have the opportunity to further adjust the installed capacity, he said.
(Reports from Norihiko Shirouzu in Shanghai and Dearborn, Michigan, and Ben Klayman in Detroit, additional reports by Joe White in Detroit and Yilei Sun in Beijing, edited by Edwina Gibbs)
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