June 8, 2004

Ford to Triple China Output to Chase GM


Filed at 6:02 a.m. ET

BEIJING (Reuters) - Ford aims to more than triple output in China this year, executives said on Tuesday, as it races to catch General Motors and other foreign auto makers in the world's fastest-growing major car market.

Ford Motor Co plans to make 65,000 units in the country in 2004, less than one percent of its global production and about a tenth of arch-rival General Motors Corp's output in China.

Rivals such as GM, Volkswagen AG and Toyota Motor Corp plan to spend about $13 billion to make some six million cars in coming years -- stoking fears of a glut and price war at a time when global car capacity is outstripping demand.

GM, the world's top auto maker, will spend $3 billion to double output in China to 1.3 million units by 2007. Rival Toyota aims to make up to 400,000 cars by 2010.

And with Beijing trying to gently cool its racing economy, some fear sales growth could slow to as little as 10 percent in 2004 after nearly doubling to two million units in 2003.

That's partly why Ford executives, while hoping to accelerate the company's expansion, are cautious.

``Sure, we'd like to move faster, but our primary concern is to build on solid foundations,'' Mark Schulz, executive vice president of Ford Asia, told reporters ahead of the Beijing Auto Show. ``Long-term success takes patience and prudence.''


Analysts say it may be moving too slowly.

Ford commanded less than one percent of the Chinese market at of the end of 2003 with sales of 17,000 vehicles, versus leader Volkswagen AG's one-third share and GM's 19 percent.

Knocked off its number-two perch on the global rankings by Japan's Toyota Motor Corp in 2003, Ford makes cars with Chongqing Changan Automobile Co Ltd at a plant on the edge of China's impoverished western hinterland.

Ford says the venture, Changan Ford, became profitable last year, its first year of operations.

Meanwhile, GM's profit from its ventures nearly quadrupled to $162 million in the first quarter. If sales growth and margins persist at those rates, China would produce about a quarter of GM's $4 billion in profits forecast by analysts this year.

``The company's troubles at home and their late entry to China mean Ford has less money to throw around than GM,'' said auto analyst Xu Xiang at China Southern Securities.

Analysts say China's car markers are in danger of cranking out more vehicles than they can sell, driving prices down as has happened in mature markets.

Car makers in the United States were sitting on some four million unsold vehicles worth $100 billion, said Daron Gifford, a managing director with ABeam Consulting.

``China's capacity is also in excess and growing rapidly,'' Gifford told a forum on the sidelines of the Beijing Auto Show, China's largest car exhibition.

Some car makers in China are worried.

``There's definitely strong pressure on prices in China. It's by far the most competitive market worldwide and everybody is decreasing prices,'' said Jean-Martin Folz, president of France's PSA Peugeot Citroen.

``There is obviously a limit to that and I hope we reach it as soon as possible,'' Folz told Reuters.


Ford itself is in the midst of a multi-year restructuring program aimed at ensuring a pre-tax annual profit of $7 billion by the middle of the decade. It is working hard to boost profits in its major U.S. and European markets.

Ford however cannot afford to sit still while its rivals expand. It has said it aims to invest over $1 billion in China in coming years and it has applied for approval to build a second plant, possibly with Japan's Mazda Corp, in the prosperous east, executives said. Ford owns a third of Mazda.

That plant, in the city of Nanjing near China's richest city of Shanghai, will be run by Changan Ford.

``It's safe to say the proposed plant in Nanjing will be similar,'' Changan Ford President Ron Tyack told reporters. ``Most assembly plants are in the vicinity of 150,000 to 200,000 units.''

Its existing plant is sited some 1,500 km (938 miles) from demand hotspots such as coastal Shanghai, where GM has a venture that will soon build its luxury Cadillac models.

Ford, which rolled out its Maverick and Mondeo models in China last year, plans to launch a new model each year on the mainland and eventually sell a full range of cars in the country.

It expects to sell 40,000 Mondeo sedans in China this year.

Partner Mazda has said it is looking for ways to cooperate with the U.S. auto maker. It said on Tuesday it aimed to increase sales by 37.5 percent to 110,000 vehicles in China this year.

``Ford and Toyota are working very hard to catch up. We think that's going to be an uphill strategy,'' GM's China chief Phil Murtaugh told reporters on Monday.


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