Ford racing into China Ford racing into China Carmaker starting behind rivals in hot market DEE-ANN DURBIN| AP auto writer July 15, 2013 Comments CHONGQING, China — Dave Schoch has one of the toughest jobs at Ford Motor Co.: catching the competition in the world’s biggest car market. When Schoch arrived in China 13 years ago, the government was building eight-lane freeways in major cities, but bicyclists and pedestrians still filled the streets. The Chinese were buying fewer than 2 million cars and trucks each year, a fraction of the 14.4 million sold in 2000 in the U.S. When he returned to China last year, Schoch was stunned. The freeways were choked with cars, from inexpensive, Chinese-made Wuling minivans to Mercedes-Benz sedans. The red-hot Chinese economy had more than doubled annual wages, giving millions of people the money to buy a first vehicle or move up to a luxury brand. “Things turned upside-down,” said Schoch, who was named head of Ford’s Asia Pacific operations in the fall. “You have to be here and experience it to believe what has happened in the last decade.” Last year, Chinese consumers bought 19 million cars and trucks — 5 million more than consumers in the U.S. Ford’s share of those sales was just 3 percent. Years of corporate chaos and financial trouble slowed Ford’s entry into China as its rivals gained a foothold. Together, General Motors and Volkswagen control a third of China’s market. But the race is far from over. China is still a country where just 58 out of every 1,000 people own cars. In the U.S., that number is closer to 800. Every year, tens of millions of Chinese are reaching the income threshold they need to buy a car, Schoch said. Many analysts predict annual sales in China of 30 million by 2020, almost double the U.S. forecast of 17 million. It’s up to Schoch to ensure Ford gets a big chunk of that phenomenal growth. “I go home each night thinking, ‘Have I really tried to move the needle? Are we moving the organization fast enough to take advantage of this? Because I really think we have a golden opportunity here,” he said. Ford wants to double its Chinese market share to 6 percent by 2015. To make that happen, the company is launching six new vehicles in China this year, including two small SUVs called the Kuga and the EcoSport, the Mondeo midsize sedan and the Explorer SUV, which is exported from Chicago. The Lincoln luxury brand will arrive next year. To meet its goals, the company has undertaken its most-ambitious growth since Ford went on a post-war building spree in Michigan 60 years ago. Ford is spending $5 billion to build five plants — including three assembly plants, an engine plant and a transmission plant — that will more than double its Chinese production capacity to 1.7 million vehicles by 2015. “They used to be laggard, cautious. But now they’re all in,” said Michael Dunne, president of the automotive consulting group Dunne and Co. in Hong Kong. “They are saying, ‘We have confidence in the China market. We have confidence in our products. We can win here.’ ” Ford sold a company record 407,721 vehicles in China in the first six months of this year. But that was only a quarter of the vehicles GM sold. Volkswagen has six brands aimed at every type of buyer in the vast Chinese market, from the cheap Skoda to the ultra-luxury Bentley. Until Lincoln arrives, Ford has just one. There are other obstacles. Ford cars are expensive. In a market where 70 percent of vehicles sold cost less than $14,500, Ford’s cheapest car is the Fiesta, which starts at $13,300. The Explorer starts around $80,000 thanks to a 25 percent import duty and other taxes. Ford’s development costs are also steep compared with competitors’ because it still does much of the research and design for Chinese vehicles at its headquarters in Dearborn, Mich., where costs are relatively high. Ford hopes to double its technical workforce in Nanjing to 1,500 people by 2015; GM already employs more than 2,000 people at its technical center in Shanghai. Another complication is the unpredictable Chinese government, which could scramble expansion plans at any time. The government requires foreign automakers to partner with local companies and decides where they can build their plants. But Ford can’t keep relying on Europe and North America, where it sells 73 percent of its vehicles. The company lost $1.75 billion in Europe last year as sales plummeted in a recessionary economy, and it expects to lose $2 billion there this year. Profits in Asia would have cushioned those losses, but Ford’s Asian operations lost $77 million because of the big investments in new plants and vehicles. One hundred years ago, Ford was the company with a head start in China. It started selling the Model T there in 1913, and founder Henry Ford explored opening a plant in China in the 1920s. But Ford quickly cooled on the idea because of China’s poor roads and low wages. Ford re-entered China in 1997, around the same time as GM. But Ford focused on the commercial van market, which was limited. GM and its Chinese partners — SAIC and Wuling — grew quickly by selling Wuling minivans and Buicks to the mass market. Ford’s attention was elsewhere. SUV sales were booming at home. The company was buying up luxury brands like Jaguar and Volvo with the profits. No one at headquarters anticipated that the Chinese market was about to take off. “If I had gone to management in Dearborn and tried to convince them that China would be 20 million units in 2013, they would have really started to worry about me,” Schoch said with a laugh. The company soon realized its error. It formed a partnership with Chinese automaker Changan Automotive in 2001 and began building the Fiesta in China two years later. But with its new luxury brands, high labor costs and bloated bureaucracy, it had a limited amount to invest. In 2006, Ford named a new CEO, Alan Mulally, to help stem its billion-dollar losses and end executive infighting. A few months after Mulally’s arrival, Ford borrowed $23.6 billion and used it to close plants, cut its workforce, improve key products and meld global operations. Mulally sold or discontinued every brand but Ford and Lincoln. By 2009, Ford was profitable again, and turned its sights on China. Schoch said Mulally asked him in 2011 if he would return to China. Schoch’s only question was whether Ford was committed to the country. Mulally didn’t hesitate. “Yes, from the board of directors on down,” he said, according to Schoch. It was a defining moment for Schoch. Associated Press writer Fu Ting in Beijing contributed to this report.