China is undoubtedly the most lucrative auto market right now and Ford Motor Company (NYSE:F) are moving in in an attempt to catch up with the competition.
Ford officially began construction of a new assembly plant in the Chongqing area, with top officials present on the site. The company has already invested $4.9 billion in construction facilities on Chinese territory.
The new plant is Ford’s latest move in their attempt to catch up with General Motors and Volkswagen who hold a considerably larger share of the car market in the country with respectively 10% and 19%, compared to Ford’s 2.4%. The new Chongqing plant is to be followed by two more, one in the same area and one near Hangzhou that will cost Ford a total of about $1.3 billion.
Ford’s policy for China seems to be geared towards offering cheaper vehicles that are attractively priced and affordable even for the inland population. This trend has yet to be fully realized because up to the present Ford are failing to offer locally produced cars that are cheap enough.
Theoretically, local production is supposed to reduce costs by up to 25% but this may still be insufficient incentive for buyers, especially considering Ford’s projected increase of yearly sales by 2.7 million worldwide.
With Ford quoting “lower operating results” in their last 10-Q, investors should look for signs that the ONE Ford policy is actually yielding tangible results and the company is getting back on its feet. While the expansion in China is in itself a commendable move, it may be too early to tell how it influences Ford’s position in the Asian market.
