(F) Ford Motor Company Breaking Ground in China on Engine Plant

Ford Motor Co. (F) broke ground on a $500 million engine plant in the southwestern city of China, Chongqing. The plant, once in full swing in 2013, will double the production capacity of its joint venture (JV), Changan Ford Mazda Automobile Co., to 750,000 units per year. The engines will be used in Ford branded vehicles built and sold in China.

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 $3.9 billion in 2010 and the projected $5.5 billion in 2011.

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.

In order to support the increasing sales, Ford also aims to triple its dealership to 340 in India and double in China (adding 100 dealerships this year) to 680 by 2016.

Apart from the $500 million engine plant, Ford signed an MOU in May to build its first transmission plant in Chongqing, with an initial annual capacity of 400,000 units per year. In July last year, the company’s another JV, Jiangling Motors Corporation, also initiated construction of a $300 million vehicle assembly plant in Nanchang. Early 2012, Ford’’s second passenger-car assembly plant in Chongqing will begin production of the new Ford Focus.

Ford has been gearing to catch up with its rivals in the world 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 the China, including General Motors Company (GM), Toyota Motor Corp. (TM), Volkswagen AG, Hyundai Motor Co. and their respective joint ventures.

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’s sales in China grew 40% in 2010 driven by higher sales of Focus compact and Fiesta subcompacts. Changan Ford sold 403,283 vehicles, an increase of 34% from last year. Meanwhile, Jiangling Motors Corp. reported an impressive 56% rise in sales to 178,999 units.

Ford, a Zacks #3 Rank (Hold) stock, revealed a 48% rise in profit to $2.61 billion in the first quarter of 2011 from $1.76 billion in the same quarter of 2010. On earnings per share basis, profits rose 35% to 62 cents per share from 46 cents per share a year ago, thereby topping the Zacks Consensus Estimate by 12 cents per share.

The rise in sales was attributable to the company’s One Ford plan, which relies on fuel-efficient lineups, continued investment in global assets, efficient management and strengthening of core businesses, which has offset the negative impact from the sluggish economic condition as well as earthquake and tsunami in Japan.

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