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Exclusive: In U-turn, Ford trenches plan to unite China's sales system after partners push back




SHANGHAI / DETROIT (Reuters) – Ford Motor Co has discarded a plan to create a unified national sales company for China that provoked distrust of the carmaker of its joint venture partners and contributed to a spectacular collapse in sales in the world's largest car market .

FILE PHOTO: People leave a Ford Escape SUV that was shown during the media day of the Shanghai auto show in Shanghai, China April 16, 2019. REUTERS / Aly Song

In light of the Ford plan announced in June last year for to combine sales channels for cars manufactured with Chongqing Changan Automobile Co. and Jiangling Motors Group, it made sense. It will promote operational efficiency in its loss-making China operations and is standard practice in most other markets.

But it ignored realities on the ground. Chinese carmakers, often in 50-50 partnerships with foreign carmakers, are reluctant to lose control of sales decisions, rarely willing to rely on each other and loyal to local provinces that are fiercely competitive in their quest for economic growth and tax revenue from vehicle sales.

"I would say there was a lack of deep understanding of how relationships work in China," said Anning Chen, who in October took over as Ford's third China chief in two years, in an interview in Shanghai.

This is the first time that Ford, battling a series of problems in China that will not provide a quick fix, reveals the fallout of the plan – a decision that was also prompted by a sharp decline in China's economic growth in the midst of the trade war with the United States as well such as deeper losses at dealers.

Many large foreign car manufacturers have 2 or 3 partners in China, which involve different marketing and distribution strategies for each partner. Ford is the only one known for trying to combine sales channels for mainstream cars.

Other steps Ford is taking to turn its China business include launching 30 new or significantly redesigned vehicles over the next three years, reducing the number of temporary workers on site, hiring more local Chinese, and making profits before growing in market. share.

Capacity cuts as Ford and its partners use "the right size" of the plants are also likely, Chen said.

A recovery will help relieve the pressure on the US carmaker, which is also shrinking to end losses in Europe through plant closures and layoffs. It will also curb the risk of Ford becoming a marginal player in China – a market with annual sales of around 28 million vehicles that many foreign car manufacturers now consider the most important.

IMPLEMENTATION OF SALES

The picture in Ford's sale has been unique to a major global car manufacturer in China. Following a peak of 1.08 million vehicles in 2016, sales began to falter in late 2017, then almost halved last year to 504,488, according to consultant IHS Markit.

IHS predicts Ford's sales will drop to 382,882 this year, while LMC Automotive forecasts Ford's China market share will fall to 1.4% compared to 3.8% in 2016.

GRAPH: Ford's sales in China collapses – here

Ford has publicly blamed an aging model lineup, but company officials who know the case said that the collapse of relationships with partners and dealers, as well as mistakes from previous management groups were the biggest factors.

For now, Ford's main goal in China is profitability, Joe Hinrichs, president of Ford Automotive, told Reuters at the company's headquarters in Dearborn, Michigan.

"You can be a profitable business in China with a relatively low market share because of … the size of the market," he said.

As evidence of progress, Hinrichs pointed to retailer products at their lowest level in 18 months and halving losses in China in the first half of the year before interest and taxes to $ 283 million from the same period the year before.

"This is not a five-year journey," he said, but declined to be more specific when asked how soon Ford's China unit is expected to regain profitability.

Hinrichs, who became head of Ford's car business in May, helped his Asia Pacific business from 2009 to 2011 – a period of strong growth for the carmaker in China.

Chen, a US citizen who grew up in China and speaks Mandarin fluently, joined Ford in October from Chery Automobile Co. However, he is a Ford veteran, having worked in the firm for 17 years, mostly in Dearborn, before joining Chery.

TERRITORIAL ON TERRITORY

Highlighting the troubled relationship that the joint venture partners have with each other and with Ford has been unhappy with a cross-sharing scheme for a small sports utility vehicle, the territory. It was developed with JMC and sold not only through JMC Ford's sales network, but also through Changan Ford.

The approach angered Changan, who wondered why it was not the development partner and who, as a larger state company, considers himself far higher in picking order than a regional company like JMC, officials from the Ford company said.

For their part, JMC was upset that the product was shared with Changan, authorities added, and declined to be identified because they were not authorized to speak publicly on the matter.

Changan Ford, which makes the Ford EcoSport SUV, Focus small car and Mondeo sedan, did not respond to a request for comment. JMC, which builds the territories and transport and Tourneo vans, declined to comment.

While Ford previously pointed out the scheme as a success, Chen was more cautious, saying that similar agreements were unlikely as they could create discrepancies in dealer services.

“We want to make sure that distribution networks are directly facing different market segments and customers. We don't want to mix them together, ”he said.

Ford also aims to build more cars locally, which will improve the relationship with domestic partners and help fill the severely underused assembly plants. Cars likely to be built in China include the remodeled SUV by Ford Explorer and Lincoln Aviator.

Ford used just 24% of its China production capacity to build 1.6 million vehicles in 2018, according to U.S. consulting firm AlixPartners. Normally prices of around 70% to 75% are considered as thresholds for limit values. Ford declined to comment on its China capacity.

Slideshow (2 Images)

PSA Group, which is also struggling in China with a capacity utilization rate of 26% in 2018 according to AlixPartners, closes one plant, sells another and cuts thousands of jobs.

However, Hinrichs said that Ford does not feel "tremendous pressure" to hide any of its five China plants given that they are already paid for.

Instead, by locally producing many of the upcoming new products, Ford will have an opportunity to further adjust the installed capacity, he said.

Reporting by Norihiko Shirouzu in Shanghai and Dearborn, Mich., And by Ben Klayman in Detroit; Further reporting by Joe White in Detroit and Yilei Sun in Beijing; Editing by Edwina Gibbs

Our Standards: Thomson Reuters Trust Principles.



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