Ford Driving Skills for Indigenous Cars
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ford Motors (NYSE: F) is in discussion with local partners in China to launch indigenous brands in the biggest auto market. The automaker is concentrating on rolling out brands specific to China, but the company’s prime focus on the enhancement of the Ford brand remains firm.
Ford recently freed up financial resources from a series of divestures to set up its position in China by introducing indigenous brands. The company proposes to sell a Sandusky, Ohio plant and an automotive lighting business to Ventra Sandusky. In addition, a month back, the company disposed of its auto interior trim business based in Michigan to a French automaker Faurecia. The price for both deals remainsundisclosed. The total proceeds from the above two deals are to be utilized for the company’s China venture.
The Late Kate
Ford, which manufactures the Focus, Fiesta, Mondeo and other sedans in China, has made a late entry compared to archrivals General Motor (NYSE: GM), Toyota Motors (NYSE: TM) and Germany’s Volkswagen. The competitors have made solid grounds in China establishing a considerable lead.
These foreign carmakers have tie-ups with the local players, in part to observe the economy’s government regulations for auto manufacturing on the mainland. Both GM and Volkswagen possess solid tie ups with local partners and have launched various country specific models. Ford makes its models in a joint venture with Chongqing, Japan’s Mazda Motor Corporation and China’s Changan Automobile. In addition, the Dearborn-based automaker has a 30-percent stake in Nanchang-based Jiangling Motors Corporation.
Not only is China the largest manufacturer of cars, but the largest buyer as well. The economy’s auto industry is estimated to grow by approximately 5 percent in the current year from 18.5 million units last year, and is expected to expand with the same pace in years to come. Ford, which was the only US automaker not to file bankruptcy to get government bailout, sent 519,390 cars to its dealers in China in 2011, posting a 7 percent higher shipment compared to the previous year. Ford’s car sales in China are expected to outpace the economy’s auto industry’s growth forecast of 5 percent.
Usually Chinese automakers employ older technology which enables them to reduce the manufacturing cost, so partnering with foreign companies helps the home players develop skills in making modern cars. This is a win-win situation for both the home and foreign automakers.
My Takeaway – a long way to go
The Chinese economy holds huge potential for car manufacturers as - even now, less than five people in a thousand possess a car. Chongqing is said to subsidize the purchase of cars, boosting sales for Ford’s venture with Chongqing and Mazda Motor. The company, which entered relatively late, has all the opportunities to explore in this growing economy. The automaker has a long way to go.
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