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Exclusive: In the opposite, Ford ditches plan to unify the Chinese sales system after partners push back



SHANGHAI / DETROIT (Reuters) – Ford Motor Co has rejected a plan to create a united national sales company in China that has distrusted the automaker in its joint partners and contributed to a major sales collapse in the world's largest car market.

FILE PHOTOS: People Walk the SUV of a Ford Escape Shown During the Media Day at the Shanghai Motor Show in Shanghai, China April 16, 2019. REITERS / Aly Song

In his face, the plan announced from Ford last June to combine vehicle sales channels manufactured with Chongqing Changan Automobile Co and Jiangling Motors Group makes sense. It would promote operational efficiency in its loss-making operations in China and is standard practice in most other markets.

But it ignores the 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 trust each other and loyal to local provinces who are highly competitive in their quest for economic growth and tax revenue from car sales,

"I would say that there is a lack of a thorough understanding of how relationships work in China," he said in an interview in Shanghai in October with Aning Chen, the third Chinese leader Ford for two years.

For the first time, Ford, battling a multitude of problems in China that do not present quick adjustments, reveals a plan failure – a decision also caused by China's slow economic growth amid a trade war with the United States, and deeper losses at dealers.

Many large foreign automakers have 2 or 3 partners in China, incorporating different marketing and distribution strategies for each partner. Ford is the only one who has tried to combine sales channels for major cars.

Other steps Ford is taking to transform its business in China include the launch of 30 new or significantly refurbished vehicles over the next three years, the reduction of temporary workers in businesses, the hiring of more local Chinese, and the extraction of profit before market share growth.

Reducing capacity when Ford and its partners take "proper sizing," their plants are also likely, Chen said.

The rebuilding would help ease the pressure on the American carmaker, which is also struggling to put an end to losses in Europe by closing down facilities and layoffs. It would also reduce the risk of Ford becoming a marginal player in China, a market with annual sales of around 28 million cars, which many foreign carmakers consider to be their most important.

SALES IMPLEMENTATION

The slide in Ford sales is unprecedented for a major global manufacturer in China. After a peak of 1.08 million cars in 2016, sales began to decline at the end of 2017, then nearly half last year to 504 488, according to consulting firm IHS Markit.

Ford's IHS sales forecast will fall further to 382,882 this year, while LMC Automotive predicts Ford's market share in China will fall to 1.4% from 3.8% in 2016 [19659004] GRAPHIC: Ford sales collapse in China – here

Ford has publicly blamed itself on the aging lineup, but company officials familiar with the matter said they were breaking ties with their partners and dealers in a joint venture, as well as the wrong steps from previous management teams are the biggest factors.

For now, Ford's main goal in China is profitability, Joe Hinrix, president of Ford Automotive, told Reuters at the company at Dearborn Headquarters in 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 signs of progress, Hinrichs listed dealer stocks at its lowest level in 18 months and halved first-half losses in China before interest and taxes to $ 283 million from the same period a year earlier.

"This is not a five-year trip," he said, but declined to be more specific when asked how soon the Chinese unit of Ford is expected to regain profitability.

Hinrichs, who headed Ford's automotive business in May, supported his Asia Pacific business from 2009 to 2011, a period of strong growth for the automaker in China.

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

TERRITORIAL TO THE TERRITORY

Highlighting the unpleasant relationship that the partners in the joint venture have with each other and with Ford is dissatisfaction with the cross-distribution arrangement for a small sports car, the Territory. It was developed with JMC and is sold not only through JMC Ford's sales network but also through Changan Ford sales.

The approach angered Changgan, who wondered why he was not a development partner, and who, as a larger state-owned company, considered himself far higher in foot than a regional firm like JMC, Ford officials said.

For their part, the JMC was upset, the product was shared with Chang, staff added, declining to be identified as 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 is building the Transit and Tourneo territory and vans, declined comment.

While Ford previously advertised the agreement as a success, Chen was more careful in stating that such agreements are unlikely as they may create discrepancies in dealerships.

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

Ford also aims to build more vehicles locally, which will improve relationships with internal partners and help fill up the underutilized assembly plants. The cars likely to be produced in China include the redesigned SUVs Ford Explorer and Lincoln Aviator.

Ford uses only 24% of its production capacity in China to build 1.6 million vehicles in 2018, according to US consulting firm AlixPartners. Typically, percentages of about 70% to 75% are considered a breakthrough threshold. Ford declined to comment on its capacity in China.

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PSA Group, which also struggles China with a 26% capacity utilization rate in 2018 according to AlixPartners, is closing one plant, selling another and cutting thousands of jobs.

Hinrichs, however, stated that Ford did not feel "tremendous pressure" to close any of its five Chinese factories, given that they were already paid.

Instead, locally producing many of the upcoming new products, Ford will be able to further adjust the installed capacity, he said.

Reporting from Norihiko Shiruzu in Shanghai and Dearborn, Michigan, and from Ben Clayman in Detroit; Additional reports from Joe White in Detroit and Yilei Sun in Beijing; Editing by Edwina Gibbs

Our Standards: Thomson Reuters Trust Principles.

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