Ford Asia Chief says small cars on way to China, India

Reuters: The head of Ford Motor Co operations in Asia said last week that the company will meet its ambitious goals for growth in China and India by greatly expanding its product offerings.

Over the next several years, Ford executive Joe Hinrichs said, the automaker will have more cars that are smaller than its subcompact Fiesta in China and India, which will mean less profit per vehicle.

However, Hinrichs said Ford will make money by selling a high volume of these smaller cars.

“For Ford, if you want to grow the business and be competitive in China, we have to have a product portfolio that plays where the volume is,” Hinrichs said.

Ford will have 15 product offerings in China by 2015, up from six today. Hinrichs said Ford needs to, and will, increase its offerings in the small-car segment of the auto market in China, which accounts for 70 percent of sales.

Ford now has only one car, the Fiesta, that fits into this major portion of the Chinese market. Hinrichs declined to say how many of the 15 vehicles it will offer in China by 2015 will be in this high-volume small-car segment.

“We will have a balanced portfolio,” in China, he said.

“It’s all about scale. And it’s all about having a cost base that’s competitive in the market you are serving,” said Hinrichs.

For instance, Hinrichs said, about $1,000 was taken out of the cost of its successful India subcompact Figo while keeping its quality competitive. The Figo will eventually be sold in 50 countries, including the Gulf nations and in northern Africa, after its debut in India in 2010.

Ford has market share of about 2.6 to 2.7 percent in both China and India.

Ford lagged behind other competitors like cross-town rival General Motors Co (GM.N) in entering China.

Hinrichs said one reason that Ford has to play catch-up now is that its troublesome financial situation prior to 2009 left it with insufficient cash to build factories and develop dealerships in the high-growth emerging nations.

Ford expects the growth rate for auto sales in China and India to be about 13 percent from 2010 to 2020.

He said Ford in India will nearly triple its dealer network to 340 by 2016. In the United States, he said, there are about 3,000 dealers for a population that is about a third of India’s.

Ford plans to double its dealer network in China by 2016 to nearly 700, and is now adding about two new dealerships per week, or about 100 a year. There is much opportunity for dealerships in China, as some cities with more than 1 million people have no Ford dealer.

Hinrichs spoke with reporters at Ford’s headquarters in Dearborn, Michigan on Thursday, just over a week after the company told Wall Street investors that China and India were key to increasing global sales by 50 percent to 8 million vehicles a year by the middle of this decade.

Ford shares have fallen nearly 10 percent since that June 7 investors forum, in which Ford showed growth plans that included an expansion of small-car sales to 55 percent of global sales by 2020 from 48 percent now.

Ford also announced that lofty profit levels achieved in the first quarter would ease in the second half of 2011.

Hinrichs said Ford will leverage its global platforms to expand business in China, where a good reputation is paramount because word-of-mouth recommendations are essential to luring buyers, most of whom save for years to purchase a vehicle.

About 85 percent of Chinese auto buyers pay cash, he said. And in China as of 2008, the year before it eclipsed the United States as the world’s biggest auto market, there were only 48 vehicles on the road for every 1,000 people of driving age.

In India, that figure in 2008 was only 25 vehicles per 1,000 people 16 years and older, said Ford chief economist Ellen Hughes-Cromwick. This compared in 2008 with 1,022 vehicles on the road in the United States for every 1,000 people old enough to drive, she said.

“How do you tell 95 percent of your population that you cannot have the freedom of transportation the rest of the world enjoys,” Hinrichs said. “It’s a major issue, which is why the growth is dramatic.”

Since 2000, industry sales from the Asia-Pacific region have risen to 31 million a year from 12 million annually in 2000, said Ford sales analyst George Pipas.

Asia-Pacific sales will grow to 45 percent of all auto sales by 2020, up from 42 percent in 2010 and 21 percent in 2000, Pipas said.

Pipas said that other countries in the Asia-Pacific region also see burgeoning growth, including Thailand, where Ford’s sales in 2011 are so far double that of 2010.

“It’s not just a China-India story,” said Pipas. “Still China and India will account for the largest volume growth over this period.”