F Ford Motor Company

By Christina Rogers in Detroit and Trefor Moss in Shanghai 

Ford Motor Co.'s big bet on China, the world's biggest auto market, has yet to pay off.

The auto maker began a $5 billion investment plan in the country in 2006, building more models locally, adding dealerships and expanding factory space in a bid to catch up with rivals such as General Motors Co. and Volkswagen AG.

After an initial boost, Ford's car sales are stalling. In 2014, the auto maker ranked as the sixth-largest by passenger-car sales in China. It plunged to 18th place in the first three months of this year, according to research firm LMC Automotive. Analysts attribute the drop largely to Ford's failure to innovate and customize its cars for technology-loving Chinese customers.

Ford has long sold cars in China, where it has several assembly factories and joint ventures. As Ford added more models and expanded the number of dealerships, the country generated profits for Ford.

But Ford's China business posted a loss in the first quarter of 2018, as the company launched a new effort to turn its operations in the country around. While the Chinese joint-venture operations contributed $138 million to Ford's quarterly profit, that gain was more than offset by engineering costs for future products aimed at the local market, Ford's finance chief said during an April earnings call.

Ford's challenges in China add to the tasks facing Chief Executive Jim Hackett, who has embarked on an ambitious cost-cutting program and has to improve margins in Ford's core U.S. business, even as the auto maker plays catch-up with rivals on electric and autonomous vehicle technology.

Further, trade tensions between the U.S. and China are threatening to create market uncertainty at a time when Ford is getting ready to spend even more in China, including a plan to import Chinese-built Focus compact cars to the U.S. starting next year.

Chinese customs authorities have been "slow walking" some Ford imports for a few weeks, a person familiar with the matter said on Wednesday. Some Ford cars awaiting import into the country have been held up by unusually lengthy port inspections and other red tape, the person said.

Ford executives say a barrage of new China-focused products--50 launches are due by 2025--will spark a turnaround, but some local sales staff are dubious.

"There is a saying: Distant water cannot slake an immediate thirst," said Shang Yongwei, a Ford salesman in Dalian, in northern China. "Ford does not understand Chinese consumers, who love new things."

Ford was also the most complained-about auto maker in China last year according to the China Consumers Association, logging 850 complaints for poor customer service and quality problems.

Tian Suoli, a construction manager in the central Chinese city of Xi'an, said he had been a loyal Ford customer for the last decade. But after spending $1,600 to fix the cooling system on his 2013 Ford Kuga SUV--and then failing to get a refund after Ford issued a recall for the same problem--he said he would never buy another Ford car.

"I was furious," Mr. Tian said. "I wanted to smash the car."

A Ford spokesman said the company has made improvements on the quality front, pointing to Ford's recent rise in J.D. Power China's 2017 initial quality study to 19th spot--up from 33rd the year before.

Ford launched its $5 billion plan to expand in China under former CEO Alan Mulally. The move, billed at the time as Ford's largest industrial expansion in at least 50 years, was accompanied by a product blitz that added more models to Ford's Chinese lineup.

Between 2012 and 2015, Ford's market share in China climbed to nearly 5%. Its joint-venture profit margins rose to a high of 15.6% in 2015.

But Ford's global-car approach--one vehicle to be sold in all markets world-wide--was limiting in China, where tastes differ from the U.S. and Europe, and made its cars more expensive to produce than the low-cost models churned out by competitors.

Much of the engineering work was being done outside the country, distancing Ford's decision makers from local customers. As a result, many of its vehicles today lack features that appeal to Chinese buyers, such as leading fuel economy and internet connectivity, analysts say.

For instance, an entry-level Ford EcoSport SUV, costing roughly $12,600, gets worse gas mileage and offers fewer tech features than the $10,900 Baojun 510 SUV, a newer vehicle built by GM and Chinese partner SAIC Motor Corp.

"They haven't exactly pushed the envelope with styling for the market," said Janet Lewis, Macquarie Capital Research's managing director of equity research. "They run the risk of losing out to up-and-coming local brands."

Ford executives say new models planned for China, including a new Kuga SUV unveiled at the Beijing Auto Show in April that runs software applications provided by internet giant Alibaba Group Holding Ltd., should boost sales. They also point to investments in local research and development, and say product delivery times have been cut by a fifth to help keep pace with the fast-moving China market.

"We're at the absolute trough of our product cycle in China," said Ford's Global Markets chief, Jim Farley, during the company's first-quarter earnings call. "Over the next 24 months, we will completely revitalize our lineup."

Fanfan Wang in Beijing contributed to this article

Write to Christina Rogers at christina.rogers@wsj.com and Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

May 10, 2018 07:14 ET (11:14 GMT)

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