@Ford Online spoke with Joe Hinrichs, president, Ford Asia Pacific and Africa about the significant events this week in China. Alan Mulally, Ford’s president and CEO, along with other executives, announced that Lincoln would be coming to China, and helped break ground for two new assembly plants.
Joe, you have had quite a week this week. Tell us about it.
A: We are having an incredible week in APA. We are so happy that Alan, Bob, and so many other corporate leaders came to China to help us break ground for two new assembly plants and to announce that Lincoln is coming to China. Alan also wanted to make sure we had time for a town hall meeting in Shanghai, which we are doing today.
Q: Many say the Chinese economy is slowing yet Ford is building new plants and bringing Lincoln. Can you tell us more information?
A: This is a great question. First of all with Lincoln, the luxury segment in China continues to be one of the fastest growing segments of the industry and one in which we want to participate. We are reinventing the Lincoln brand in North America and believe Lincoln has significant sales potential in China. Introducing Lincoln in China marks the next step in our expansion in Asia and our commitment to serving customers in the luxury market.
As far as the general health of the Chinese economy, this is something we watch very closely. Manufacturing indexes are down, but real estate prices are starting to rise after several months of being down. Overall Chinese GDP is still growing at a 7 – 8% rate and the auto industry is forecasting sales to be up around 5% this year to around 19 million units. China continues to be the world’s largest auto market and is forecasted to be the largest growth market for autos the rest of this decade. We must expand our product portfolio and our manufacturing capacity here to grow our presence in China. For example, our car sales were up 32% in July, so we have some good momentum going into the second half of the year.
Q: When and how will you sell Lincoln in China?
A: We will begin selling Lincoln vehicles in 2014. We will be importing them from North America. We’re starting to identify dealers now and are refining our approach to appeal to an evolving luxury demographic in China. Research tells us that affluent customers in China are more interested in enriching personal experiences than simply a demonstration of face and wealth. In China, the emerging luxury buyers are younger and fast-changing. They have a strong desire to understand and appreciate the heritage of a brand - the origins of its real values such as timeless elegance, sophistication and craftsmanship in Lincoln. Lincoln’s combination of outstanding products and a personalized luxury buying and ownership experience is expected to be particularly appealing to this evolving group of Chinese luxury consumers.
Q: Are we offering incentives on vehicles in China?
A: We believe our vehicles are already priced for exceptional value. However, the market in China continues to get more and more competitive as the overall growth rate slows compared to the last few years and competitors continue to add new products and capacity. While we do offer some incentives to remain competitive on all our product lines and dealers have flexibility to offer deals on certain products, we know that too many incentives can deteriorate a brand’s value over time. Adjusting capacity and creating more value for customers is a much healthier long-term approach.
Q: Are you afraid of overcapacity in China, especially as you are building 5 new plants in the country?
A: We are constantly monitoring the Chinese market to match capacity with the real demand, which has always been an important part of the ONE Ford plan. The fact is, we need more products to offer Chinese customers here in the world’s largest market, and we have a great plan to deliver this. In 2009 we only participated in 20% of Chinese market segments by offering only four passenger cars and the Ford Transit for sale. In 2015, we will be in 50% of the segments. We are now bringing 15 new vehicles to the Chinese market by 2015 and focusing on big opportunities, like with the SUV segment. This is the fastest growing segment in China and in 2013 we will have a full lineup of SUV’s in the marketplace – EcoSport, Kuga, Edge, and Explorer.
We take a very long-term view of our business in China. We believe the world’s largest automotive market will continue to grow. Most experts believe sales in China will top 30 million units annually by 2020. As a global automotive leader, we must have a strong and healthy business in China. That’s the plan.
Q: Will you introduce an indigenous brand in China?
A: Actually we already have a successful indigenous brand in China with JMC, our commercial vehicle investment. For passenger cars, as part of our ONE Ford strategy, we have been focused entirely on building the Ford brand here in China. Within the Ford brand portfolio, we have an array of high-quality, fuel-efficient vehicles with great designs and affordable technologies - vehicles that offer excellent value for money. We are so excited to be bringing so many new Ford vehicles to China. And, with the announcement that Lincoln will be coming to China in 2014, we have the opportunity to attract luxury buyers here as well. As part of our on-going efforts to understand China's evolving regulatory and competitive environment, we are studying the topic of indigenous brands together with our partners in China.
Q: APA lost money in Q1 and Q2, and yet you have seven plants under construction across the region. When will APA yield the returns we expect?
A: Part of the reason we had losses in the first half of the year is the investment we are making for long term growth and profitability. We have said 60-70% of Ford’s global growth will come from this region this decade so we are installing the manufacturing, dealer, and people capacity which will enable us to bring our aggressive expansion plans to fruition. So many people in APA are working so hard to deliver our plan to the company. We believe the investments we are making now will allow APA to be a significant contributor to Ford’s business by mid-decade. Thanks to the support of global ONE Ford, we are embarking on our company’s biggest global expansion in half-a-century. It’s an incredibly exciting time for all of us.