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Business

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




By Norihiko Shirouzu and Ben Klayman

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "SHANGHAI / DETROIT (Reuters) – Ford Motor Co has scrapped a plan to create a unified national sales company for China that stoked mistrust of the automaker at its joint venture partners and contributed to a spectacular collapse in sales in the world biggest car market. " data-reactid = "32"> SHANGHAI / DETROIT (Reuters) ̵[ads1]1; Ford Motor Co has discontinued a plan to create an overall national sales company for China that provoked distrust of the carmaker with its joint venture partners and contributed to a spectacular collapse in sales in the world's largest car market.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "On the face of it, the Plan announced by Ford in June last year to combine sales channels for vehicles manufactured with Chongqing Changan Automobile Co. <000625.SZ> and Jiangling Motors Group made sense. It would promote operational efficiency in its loss-making China operations and is standard practice in most other markets. . " data-reactid = "33"> On the other hand, the plan announced by Ford last June to combine sales channels for vehicles manufactured by Chongqing Changan Automobile Co. <000625.SZ> and the Jiangling Motors Group made sense. It would promote operational efficiency in its loss-seeking 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 Ford, struggling with a series of problems in China that does not provide a quick solution, has revealed about dropping the plan – a decision that was also prompted by a sharp slowdown in China's economic growth in the midst of the US trade war as well as deeper losses at retailers.

Many large foreign car manufacturers have 2 or 3 partners in China, involving 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 operations, including launching 30 new or significantly redesigned vehicles over the next three years, reducing the number of temporary workers at the plant, 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.

help to relieve the pressure on the American automaker, 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.

SALES IMPLOSION

has been unique to a major global carmaker in China. Following a peak of 1.08 million vehicles in 2016, sales began to decline in late 2017, then almost halved last year to 504,488, according to consultant IHS Markit.

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

(Graphic: Ford's sales collapse in China – https://graphics.reuters.com/FORD-MOTOR-CHINA/0100B273150/FORD-CHINA.jpg)

Ford has publicly blamed an aging model lineup, but company officials familiar with the matter said the collapse in the relationship with partners and dealers, as well as the fact that mistakes from previous management teams were the major factors. 19659016] 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 using … the size of the market," he said.

As evidence of progress, Hinrichs pointed to retailer goods at their lowest level in 18 months and a halving of losses in China in the first half of the year before interest and taxes at $ 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 about how soon Ford's Chinese unit is expected to regain profitability.

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

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

TERRITORIAL ON TERRITORY

Highlights the uneasy relationship that the joint venture partners have with each other and with Ford has been the accident of a cross-sharing arrangement for a small sports car, 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 pecking 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, the officials 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, a small Focus car and Mondeo sedan, did not respond to a request for comment. JMC, which builds the Territory and Transit and Tourneo vans, declined to comment.

While Ford previously stated the scheme as a success, Chen was more cautious, saying that similar deals were unlikely because they could create discrepancies in dealers' services. [19659029] "We want to make sure distribution networks are directly targeting different market segments and customers. We don't want to mix them up," he said.

Ford also aims to build more cars locally, which will improve relations with domestic partners and help to fill the gently underused assembly plants. Cars that are likely to be built in China include the remodeled SUVs Ford Explorer and Lincoln Aviator.

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

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 "enormous 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 win 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; Additional reporting by Joe White in Detroit and Yilei Sun in Beijing; Editing by Edwina Gibbs)



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