Ford's big bet: Americans are ready for Chinese cars

Ford attempted to soft-pedal the shift to China by announcing it would invest $900 mn in Kentucky

Americans buy millions of dollars of stuff made in China every day.
 

So why not add the Ford Focus to the mix? To hear Joe Hinrichs, Ford Motor Co.’s president of global operations, talk about the plan to move the car’s production to a factory in Chongqing, it’s no big deal. “Consumers care a lot more about the quality and the value than they do about the sourcing location,” Hinrichs said. “iPhones are produced in China and people don’t really talk about it.”

Maybe so, but the Apple product has been manufactured there from the start, while Ford has never before made any of its vehicles in China for American buyers. In fact, the gambit by Jim Hackett, Ford’s new chief executive officer, will make the Focus the biggest automotive export ever from that country to the US.
 

It’s a risk because “this is a big shift with a vehicle name that has been associated with the US market,” said Jeff Schuster, an analyst with LMC Automotive. “But if the vehicle meets the needs of the buyer, I think it’s less of an issue than it used to be.”
 

One American who might be displeased: President Donald Trump. He excoriated Ford last year when the company said it would start making its second-best selling US car in Mexico. During the campaign, Trump also blasted China as a currency manipulator and for what he complained were its unfair trade practices.
 

For now, Trump’s secretary of commerce, Wilbur Ross, seemed to give Ford a pass, saying in a statement that its Chongqing plan “shows how flexible multinational companies are in terms of geography.” Ross added, though, that the administration expected the flexibility to go both ways.
 

“I believe that as President Trump’s policies and reforms take hold, more companies will begin to locate their facilities in the US as several German and Japanese automakers already have,” he said.
 

Ford attempted to soft-pedal the shift to China by also announcing it would invest $900 million in its Kentucky factory to build big SUVs. Hackett didn’t make a personal call to Trump, as his predecessor Mark Fields did when the company decided to scrap a Mexico small-car factory in January. Instead, Ford’s government affairs staff in Washington informed the administration of the China deal after it was announced Tuesday morning.
 

Trump himself hasn’t commented on the matter. With “such a big nameplate coming from China,” there could still be presidential pushback on Hackett’s first major strategic decision, said Art Wheaton, Cornell University labor professor. Hinrichs said the company was aware of the risks. “China gets a lot of attention — we’ll see how this plays out.” bloomberg

One scenario Ford considered as it looked to China was Congress ultimately levying punitive tariffs on foreign-made imports. The conclusion was that it still made sense. By ending North American production of the Focus and importing it mostly from China, Ford anticipates it will save $1 billion.
 

“We believe this is a much better plan for our business globally,” Hinrichs said. “We think the significant capital savings outweigh any of the risks associated with any adjustments to the border.”

Ford expects to begin building the Focus in Chongqing in the second half of 2019. General Motors Co. has exported a few Cadillacs and Buicks from China, while Volvo -- now Chinese-owned -- has shipped some S60 sedans to America. None of that compares to the Focus, which had sales of 168,789 units in the U.S. last year.
 

If Americans accept a Chinese-made Focus, Ford’s move could usher in a new era of Far East auto production, where labor can be cheaper than in Mexico. LMC Automotive sees auto exports from China to the U.S. more than doubling by 2020, and predicts Ford will also transfer production of the iconic Taurus, once America’s favorite car, there from Chicago.
 

With Focus, the production shift will lower costs on a model that analysts figure doesn’t make money right now, with an assembly line in Wayne, Michigan, staffed by members of the United Auto Workers union. The UAW declined to comment on Ford’s announcement.

Sales of small cars from all automakers have cratered since gasoline prices fell and Americans rediscovered their love of sport utility vehicles. Focus deliveries in the U.S. are down nearly 20 percent this year, despite generous discounts. That’s what drove Ford’s original decision to assemble the car in Mexico, before finding a cheaper solution in China.

Not long ago, the quality of Chinese cars wasn’t considered ready for prime time. When the first one showed up the Detroit auto show in 2006, its dashboard looked like it was made from popsicle sticks. Now, Hinrichs said, “the quality is very good in our plants there. China is capable of producing at the same global level standards we have everywhere else.” And that could be all it takes.

“Times have changed,” said David Whiston, an auto analyst with Morningstar in Chicago. “No American would consider buying a Chinese-built car 20 years ago. Now people just want their car to work.”