April 15, 2013 / 4:01 PM / in 5 years

Ford sees profit in China after expansion push

SHANGHAI, April 16 (Reuters) - In 2006, as China’s automobile market was fast becoming the juggernaut that by 2009 would overtake the United States in vehicle sales, Ford Motor Co executives were spending only 10 percent of their time working on Asia.

Now, China and the rest of Asia take up 35 to 40 percent of weekly meetings of Ford’s top executives, many hooked in by video conference from around the world.

“We’re about at break-even and we’re also at the height of our investment,” said Alan Mulally, chief executive of Ford, of the company’s profit margins in China.

The rising role of China is the central aspect of what is a transcendental moment in the company’s history, Mulally and Chief Operating Officer Mark Fields said in an interview last week at Ford headquarters outside Detroit.

“This is one of the biggest transformations in business history,” said Mulally, citing the shift of emphasis for a company that was sustaining big losses and mainly making large vehicles for the U.S. market, to a profitable company that is truly global.

Ford lost $77 million last year in Asia, but turned a profit in the fourth quarter. Ford does not break out financial results for China only.

Mulally said the progress Ford has made in China was on the back of a limited lineup, but that is about to change, which has him encouraged about continuing to turn profits in China and Asia.

Ford this year is launching three sport utility vehicles in China, part of the company’s plan to introduce 15 new or significantly refreshed vehicles in the world’s biggest auto market by 2015.

Since 2006, Ford has invested $5 billion to expand in China and open five new plants, including three assembly plants, by 2015. It will double its 2012 production in China along with its joint venture partner Changan Automobile Co, to 1.56 million vehicles annually by 2015, including 1.2 million passenger cars.

The 67-year-old Ford chief said he is encouraged the company is starting to be profitable in China while “doing that with the biggest investment we have ever made. Now think about when the plants are in, just think about where those margins go.”

Ford’s vehicle sales rose 21 percent in 2012 in China, where industry sales rose only 4 percent. Ford sold 626,616 vehicles in China last year.

Ford in 2012 held a 3 percent market share, well behind industry leaders Volkswagen AG and General Motors Co .

Ford’s sales gains have been impressive, but like Volkswagen’s recent gains in the U.S. market, they come from a low base. Ford’s China sales in the first quarter were 186,596, up 54 percent. By contrast, GM sold 2.84 million vehicles in China last year, up 11 percent.


While Ford’s investment in expanding its footprint in China is aggressive, it is investing less than either Volkswagen or General Motors in its effort to catch up to the leaders after getting a late start. Ford did not sell any cars in China until 2003, when Volkswagen and GM had already laid a solid foundation with their Chinese joint venture partners.

Sales of a single Volkswagen model, the Lavida compact car, in February were higher than all of Ford’s lineup of passenger cars in China.

Volkswagen plans to invest more than double what Ford will spend by 2015 in China, and GM said in 2011 it would spend up to $7 billion through 2015 and has hinted that it will up its spending beyond that.

LMC Automotive analyst Zhu Bin in Beijing said the level of Ford’s rate of investment in China is at the right pace. He said Ford needs to build the foundation that VW and GM built years ago before it gets even more aggressive.

“Ford should wait and see if they need more investment” in China once its planned plants are up-and-running in 2015, said Zhu. “The market in China will not grow as significantly as it has in the past.”

China is also concerned about overproduction, Mulally said.


Of course, when Ford’s executives spent only 10 percent of their time worrying about Asia, they could be forgiven for paying attention to existing operations. Ford lost $30 billion between 2006 and 2008, and its share price reached $1.01 in late 2008.

Last year Ford made a net profit of $5.7 billion, its fourth straight year in the black. It’s shares now trade above $13.

China and the rest of Asia will account for 40 percent of Ford sales by the end of this decade. China last year became Ford’s second-biggest market behind the United States, and is nearly twice the size of its third-largest country in sales, Britain.

“Clearly this is going to continue to be the highest rate of growth for us over the next few years it’s going to be one of the major contributors to our revenue and our profit,” Mulally said.

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