Ford breaks ground on China plant key to growth plans

CHONGQING, China Mon Aug 27, 2012 1:32am EDT

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CHONGQING, China (Reuters) - Ford Motor Co (F.N) will begin making its 2.0-liter EcoBoost turbocharged engine in Chongqing, its manufacturing hub in southwest China, next year, with the second-largest U.S. car maker hoping to catch up with rivals in the world's biggest auto market.

Ford made the announcement at an event in Chongqing on Monday, when its top brass, including Chief Executive Alan Mulally, attended the groundbreaking of a third assembly plant. The engine plant is currently under construction at a separate facility in the same complex.

"Asia Pacific is such a fantastic growth market, and China specifically - even though we've slowed down a little bit, it's still in the 10 percent range, which is a terrific growth rate," Mulally told reporters after the event.

Ford won approval from China this week to break up its three-way tie-up with Japan's Mazda Motor Corp (7261.T) and China's Chongqing Changan Automobile Co Ltd, Mulally said, adding there was no timetable for when it would clinch regulatory approval. Ford has a 35 percent share of that tie-up.

Ford has spent $4.9 billion building factories, adding dealers and launching new models in China since 2006. Success in China is key to meeting Mulally's goal of selling 8 million vehicles worldwide by 2015, up from 5.3 million in 2010.

Ford recognizes it has been too slow to enter the Chinese market. Last year, Ford had 2.5 percent market share in China, while Volkswagen AG (VOWG_p.DE) held nearly 18 percent and General Motors (GM.N) 10 percent, according to LMC Automotive.

Ford earmarked $600 million to build the third assembly plant in Chongqing, which is expected to open in late 2014. The automaker is also building another plant slated to open in 2015 in Hangzhou for $760 million.

The investments come as the Chinese auto market cools.

Last year, sales rose 2.5 percent, down from 32 percent growth in 2010. Unsold cars are clogging dealer lots, forcing many to offer discounts, though the China Association of Automobile Manufacturers is sticking to its forecast for overall auto sales growth of 5-8 percent this year.

PRICE-CONSCIOUS

Ford sees considerable growth prospects in central and western China, where customers tend to be more price-sensitive, favoring the older generation, or "classic", Focus car, said Marin Burela, president of Changan Ford Mazda Automobile Co.

Earlier this year, Ford launched its revamped Focus compact car in China, the first of 15 new models the company will debut by 2015. Ford will sell both the old and new models in China, Burela said.

Ford is looking to sell cars that cost less than its Fiesta subcompact, currently its cheapest model with a price tag of $12,300-$17,500. In a June investor presentation, Ford's head of Asia and Africa Joe Hinrichs said about 70 percent of Chinese buyers purchase cars that cost less than $14,500.

"We can start to begin to play in some high-volume spaces and gather more volume and gain our market share," Hinrichs said during an investor presentation. "Of course, we need the manufacturing capacity and the dealers to make that happen."

Making those vehicles in China is key to Ford's plans because Chinese import duties can increase vehicle prices considerably. Ford aims to double production capacity in China to 1.2 million vehicles by 2015, about 80 percent of which will be in Chongqing.

The Chongqing manufacturing complex currently employs 13,000 people who are, on average, 28 years old. After 2015, Ford expects to increase total staffing to 25,000, Burela said. (Reporting by Deepa Seetharaman; Editing by Ian Geoghegan)

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