By Trefor Moss and Mike Colias
SHANGHAI -- Ford Motor Co.'s multibillion-dollar push to expand
in China this decade has veered off course, leaving it mired in a
sales slump that is weighing on its future in the world's largest
auto market.
The No. 2 Detroit auto maker's sales in China fell 27% in the
first six months of 2019 from the prior-year period, as a downturn
in the Chinese car market extended to a 12th month in June. The
sharp drop-off in China auto sales -- the industry's first since
Beijing opened the market to foreign car companies in the 1980s --
is challenging even stronger and more-established global car
manufacturers in the country, like General Motors Co. and
Volkswagen AG.
The prolonged sales decline has become particularly troublesome
for smaller, mass-market players like Ford that arrived late and
are now being threatened by much-improved Chinese brands.
The speed and depth of Ford's decline in China stands out,
exposing deep-rooted flaws in its approach.
Last year, Ford's sales in China plunged 37%, much sharper than
the broader market's 3% decline. It reported a $1.5 billion loss in
the country in 2018, its first after several profitable years.
Ford's China market share was 2.1% in the first quarter this year,
down from 5% the same period in 2016.
Ford executives failed to innovate locally, assuming that a
global product strategy successful in the U.S. and Europe would
also work in China, said current and former managers. However,
rivals moved faster to add new technologies, even as Ford resisted
tailoring its lineup to suit the needs and desires of Chinese
buyers, these people said.
"We probably didn't recognize that the market was moving very
fast," said Anning Chen, who took over as Ford's China chief
executive in November. An engineer who most recently ran China's
Chery Automobile Co., Mr. Chen said Ford must work at "China speed"
and prioritize features appealing to China's style-conscious
buyers.
Ford's future as a global auto maker hinges on whether Mr. Chen,
and Chief Executive Jim Hackett, can turn around the China
business. Ford is already shrinking its presence in Europe and
South America amid persistent losses in those regions. Failure to
transform the China operation into a reliable profit generator
leaves Ford almost entirely dependent on the U.S., which is also
slowing. The company reports quarterly earnings Wednesday
afternoon..
The challenges are plenty. Ford's China missteps played out over
several years and involved a revolving cast of executives as well
as a fraught relationship with its joint-venture partner Chang'an
Automobile Co. That left the company with outdated models,
frustrated dealers and excess factory space.
Ford is now counting on a new-model blitz to revive sales. The
company has established new research and design centers in China to
engineer vehicles for the local market and is developing a
multimedia system with Chinese tech giant Baidu Inc. It is also
slashing costs and will soon start building more profitable models
in China, such as those sold under its premium Lincoln brand,
allowing them to avoid tariffs.
Losses in China narrowed in the first quarter, indicating some
progress. Still, some analysts are skeptical Ford can bounce back,
especially in a contracting car market. Industrywide sales in China
dropped 12% in the first half, the weakest in four years, as a
slowing Chinese economy and uncertainty around U.S. trade relations
continued to weigh on consumer confidence.
"Ford in China has become pretty irrelevant," said Janet Lewis,
head of Asian auto research at Macquarie Group. "These types of
problems can't be solved with a couple of new models."
Recent tensions with Chang'an have further hampered Ford's
turnaround efforts. Last year, Ford's marketing managers in China
sought to erect a five-story vending machine to dispense cars for
test drives. The promotion was intended to highlight a new
partnership with e-commerce giant Alibaba Group Holding Ltd. and
boost Ford's sales through online retail.
Senior managers at Chang'an learned of the vending-machine
project only days before the launch, leaving them fuming, according
to former Ford employees involved with the effort. The conflict led
Ford to eventually scale back its Alibaba partnership, they
said.
The two joint-venture partners also were at odds in their
response to collapsing sales, according to a former executive at
Ford in China. Ford wanted to restructure and move faster to put
out new models, while Chang'an's priority as a state-owned
enterprise was to protect jobs and keep manufacturing cars to lift
the local economy, this person said.
Chang'an didn't respond to requests for comment. A Ford
spokeswoman described the Alibaba project as a successful pilot but
declined to comment on its partner's reaction. Mr. Chen said it
isn't uncommon for joint-venture partners to look out for their own
interests, adding that the two companies are working more
collaboratively now.
Ford had found success in China under former Chief Executive
Alan Mulally, who pressed for a major industrial expansion earlier
this decade. The company opened dealerships at a rate of about 100
a year, mostly in less-developed cities farther inland, and
established new factories, looking to catch up with GM's
more-established manufacturing footprint.
Ford's sales peaked in 2016 at 1.27 million -- or about 19% of
overall sales. Last year, it sold a total of 752,243 vehicles in
the country.
Part of the problem is that for years Ford relied on an
ever-changing group of American and European executives to run
operations in China -- many of whom had a limited understanding of
the local marketplace, said former and current executives.
In a country obsessed with technology, Ford's lineup grew stale
and its models lacked features important to Chinese buyers, such as
internet connectivity and large, multimedia displays.
"Ford suddenly started looking middle-aged," said Fu Yu, an
entrepreneur based in Beijing, who recently traded out his Ford
Focus for a new Honda Civic.
In an interview, Joe Hinrichs, Ford's president of automotive,
acknowledged the executive turnover and aged vehicle lineup hurt
its business at a time when Chinese rivals were quickly improving.
Ford has since installed new leadership in China with more
on-the-ground expertise and is working to mend frayed relations
with its dealers there, another contributor to its sales decline,
Mr. Hinrichs said.
"We've hired many local nationals with automotive experience in
the Chinese market to help," he said. "They're more in tune with
what's going on in the marketplace."
--Bingyan Wang and Kersten Zhang in Beijing, and
Chunying Zhang
in Shanghai contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com and Mike Colias at
Mike.Colias@wsj.com
(END) Dow Jones Newswires
July 22, 2019 11:24 ET (15:24 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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