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 (pronounced Shock) 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 United States. 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 of 30 million in China by 2020, almost double the U.S. forecast of 17 million. It’s up to Schoch to ensure that 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 postwar 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.
Ford “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 407,721 vehicles in China in the first six months of this year – a company record. But that was only a quarter of the vehicles that GM sold. Volks- wagen has six brands aimed at every type of buyer in the vast Chinese market, from the cheap Skoda to the ultraluxury 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 because of 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 it 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.
Ford hopes its manufacturing base in Chongqing, far from China’s crowded eastern coast, will help it attract rural buyers in the still largely untapped markets in western China. For those buyers, Ford is developing a low-cost car to compete with the $9,500 Chevrolet Sail.
Ford will use Lincoln to make a play for China’s booming luxury market, which is dominated by German brands like Audi and BMW. Lincoln used to be the best-selling luxury brand in the U.S. but fell behind when Ford started focusing on other luxury brands. Ford’s effort to revive the brand began this year with the launch of the Lincoln MKZ sedan in the U.S.