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Ford Motor Co. (F - Analyst Report) plans to raise its annual production capacity by nearly 60% in China by investing $600 million with its joint venture partner, Changan Automobile Group Co. The automaker expects to boost capacity at its plant in the southwestern city of Chongqing by 350,000 units per year to 950,000 vehicles per year by 2014. Construction of the expansion project is expected to start immediately.
Ford manufactures Focus, Fiesta, Mondeo and other models in China in a joint venture with Chongqing Changan Automobile Co and Mazda Motor Corp. It also holds a 30% stake in Jiangling Motors Corp. that makes light commercial vehicles.
Last year, Ford broke ground for a $300 million vehicle plant with Jiangling Motors, which is capable of producing up to 300,000 units annually. The facility is scheduled to start operations at the end of 2012.
Ford has embarked upon an aggressive expansion plan in China that includes plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. In order to develop these new models, Ford will build new plants raising its capital spending to about $6 billion annually by mid-decade from $4.3 billion in 2011. In order to keep pace with the expansion, Ford also plans to double its workforce by hiring 1,200 employees by 2015.
Ford anticipates global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020 compared with 48% presently. One third of the small car sales are expected to come from Asia.
Auto sales in China had grown at a double-digit pace since 1999, except in 2008 when the global economic crisis crept in. In 2009, China overtook the U.S. as the biggest auto market in the world by sales volumes when the Beijing government introduced a stimulus package, including tax incentives for small cars with engine sizes of 1.6 litres or smaller.
However, the incentives were scrapped last year and the Beijing government imposed quotas on new car registrations in order to control traffic congestions. As a result, new car deliveries plummeted 56% to 403,500 units in 2011.
Nevertheless, China’s automotive industry outlook is promising in 2012. According to China Association of Automobile Manufacturers (CAAM), car sales in 2012 is expected to grow by 9% in the country, which is much higher than 2011 (2.5%).
Ford has been gearing to catch up with its rivals in the world's largest auto market. Currently, the automaker holds 2.4% of the passenger-vehicle market in the country. It has been lagging behind the big players in China, namely General Motors Company (GM - Analyst Report), Toyota Motor Corp. , Volkswagen AG (VLKAY), Hyundai Motor Co. and their respective joint ventures. Ford’s sales in China grew 7% to 519,390 vehicles in 2011.
The company plans to expand its production capacity in China to 1.1 million vehicles by 2012. It will spend $1.6 billion to build 4 plants in the country by 2012. In contrast to this, GM, which already produces more than 2.8 million vehicles per year, has targeted to grow its production capacity to 3.7 million vehicles by 2015.
Ford, a Zacks #3 Rank (Hold) company, posted a 34% fall in profit to $797 million or 20 cents per share (before special items) in the fourth quarter of 2011 from $1.20 billion or 30 cents per share (before special items) in the same quarter of 2010. With this, the automaker has missed the Zacks Consensus Estimate by 7 cents per share. However, total revenue during the quarter grew 6.5% to $34.6 billion. It was higher than the Zacks Consensus Estimate of $31.8 billion.