Ford Motor Co.
Industryweek 34910 Ford Explorer 2019

Ford Sees Profit Return in China by Building Models Locally

May 15, 2019
Building Lincoln models and the Explorers in China is the plan to turn around the aging product line in China which lost $128 million in the first quarter as sales plunged by 36%.

Ford Motor Co. (IW 500/3) will help turn around its money-losing Chinese operations “a lot” once it begins building Lincoln models there later this year and the Ford Explorer sport-utility vehicle next year, the company’s chief financial officer said May 15.

“It’s a huge, huge improvement in terms of the business model for each one those” models built in China, Bob Shanks, retiring as CFO June 1, said at the Goldman Sachs Industrials Conference in New York, where he appeared with incoming CFO Tim Stone. “Material costs are lower in China, labor is lower in China, we can be closer to the market in terms of consumer demand.”

The automaker has struggled with an aging product line in China, losing $128 million there in the first quarter as sales plunged by 36%. Reversing its slide in the world’s largest auto market is key to CEO $11 billion restructuring of the company. Lincoln has been the lone bright spot for Ford in the market, where it sold a record 55,315 of its luxury models last year, as sales of the jumbo Navigator SUV soared 84%.

Ford’s presentation only touched on the trade war between the U.S. and China set in motion by President Donald Trump, with Shanks saying that he expects improvement despite existing tariffs. China retaliated this week to Trump’s imposition of 25% tariffs on some imports, slapping duties on more U.S. goods. Local production would avoid those tariffs, but automakers with plants there could still face retaliation from the government or a stiff arm from consumers if Chinese-American relations get worse.

Lincoln has grown briskly despite importing its vehicles and paying hefty tariffs on them. To avoid that, Ford will begin building the Lincoln Corsair small SUV in China late this year and will eventually build all of its models there, except the Navigator, Shanks said.

“It’s a huge, huge opportunity for Lincoln,” Shanks said. “We see China as ground zero for Lincoln, given the size of the market and how well the brand has been received.”

Hackett is trying to reverse a slide in profits companywide while preparing the 116-year-old automaker for a future of electric and self-driving cars. Ford shares jumped last month after the company posted better-than-expected earning that were supported by slashed expenses, dismissals of salaried employees and fat profits from F-Series trucks.

The collapse of its Chinese business has been among Ford’s most profound reversals of fortune. The automaker lost $1.1 billion in the Asia Pacific region last year, mostly in China. Shanks said Ford hopes to rebuild in the market by introducing 30 new models over the next three years and returning its dealers to profitability.

“I would describe the situation as stabilizing,” Shanks said of China. “We still have a lot of work to do.”

 By Keith Naughton

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