Ford breaks ground on new plant in eastern China

Friday, August 24, 2012, Vol. 36, No. 34

HANGZHOU, China (AP) — Ford Motor Co. is developing a lower-priced small car for the Chinese market but has no plans to start a separate, cheaper brand in China as rivals General Motors and Volkswagen have.

Ford executives discussed their plans during a three-day tour that ended Wednesday at the groundbreaking of a new assembly plant in the eastern city of Hangzhou. The $760 million plant, which is Ford's first plant on the populous east coast of China, is expected to open in 2015.

"Hangzhou is really critical because of the market it serves, and it diversifies our operations," CEO Alan Mulally said after shoveling some dirt in a ceremony with local officials. He said the city has good infrastructure and a trained workforce that will help Ford expand.

Ford won't say what it plans to build there, but Ford China CEO Dave Shoch confirmed this week that a new small car similar to the Chevrolet Sail will be among the eight vehicles Ford is bringing to China by 2015.

Ford's growth in China has been stymied by two things: It has just seven vehicles on sale here, compared with 30 for GM, and those it sells are relatively expensive. The Sail starts at around $10,000. Ford's cheapest offering right now, the subcompact Ford Fiesta, starts at $13,316.

"I think Ford cars are safe. The material they use is good and thick, not like the Japanese cars. But the price is pretty expensive," said Su Xiaoling, 31, a sales manager at a real estate company in Shanghai.

Ford executives hope to start changing that perception next year, with the launch of the lower-priced EcoSport and Kuga small SUVs. The new small car will go on sale sometime in the next three years.

"We do recognize that we have been playing at the higher end," Shoch said.

Ford Asia Pacific chief Joe Hinrichs says the company learned a lot from the development of the Figo, a $6,800 subcompact it sells in India. But Ford won't sell the Figo, which is smaller than the Fiesta, in China, Hinrichs said, in part because it's a right-hand drive car.

One thing the company won't do to attract more price-sensitive buyers is form a cheap, Chinese-only brand. Most of Ford's rivals — including GM, Volkswagen and Nissan — have established lower-priced brands in the last year at the request of the Chinese government, which has gotten increasingly concerned that Chinese car companies are falling behind their foreign rivals.

Hinrichs said Ford is studying whether to form a new brand, but thinks China, which has more than 100 car companies, has too many brands already. So far, the government has approved Ford's growth plans without insisting on a new brand, he said.

Ford is in the midst of its biggest production expansion in 50 years in China. It broke ground on a $600 million plant in the southwestern Chinese city of Chongqing on Monday and on Tuesday announced it will bring its Lincoln luxury brand to China in 2014.

Ford says the new plants are key to its plan to increase global sales by 50 percent to 8 million by 2015.