Ford cashes in on special relations

Did you know that the Philippines is the only Asean country where the Ford Expedition and Explorer are sold? Eight to 10 Expeds and three Explorers are sold in the PH every month in spite of their gas-guzzling reputation and the endlessly rising price of gasoline.

The successful marketing of these big Fords despite their fuel profligacy indicates how Ford Motor Co. is cashing in on the lingering effects of the “special relations” that the United States had with the PH. It seems that Filipino consumers still have a soft spot in their hearts for American products—including big SUVs made by Ford in America.

Ford Group Philippines (FGP) president Randy Krieger mentioned the special relations thing during a chat over coffee with PDI Motoring one morning last week. But special relations aren’t the only reason why Ford sales are booming in the PH. Krieger was cheerful and smiling a lot that morning, for he had reason to. Earlier last month, FGP reported a 59 percent leap in sales in the first semester compared with the year-ago period. The surge was driven by the all-new Fiesta, now FGP’s best-selling nameplate and the car that Krieger says “has given our dealers a lot of energy.”

Aside from the Fiesta’s gains, Ford Everest sales in the first half of 2011 increased by 33 percent from a year ago while Ranger sales went up by 34 percent. Krieger credited the growth to “good products, the work done in the last 10 years by past Ford CEOs who developed the marketing strategy and staff, our dealers and the successful implementation of the One Ford plan.” FGP’s ranking second to Mazda in the JD Powers 2010 Philippine study on customer satisfaction surely helped, too, ditto FGP’s 24-Hour Parts Guarantee Program covering all local Asean-built units.

10 all-new products

Riding the momentum, Krieger revealed that FGP plans in the next five years to roll out 10 all-new products and increase Ford dealerships nationwide from the present 23 to 40. The rollout starts with the 2011 Explorer in October and the new Ranger in the first quarter of 2012, with the much-anticipated Focus following later next year. Right now, FGP ranks fifth in overall PH auto industry sales, but with these 10 all-new vehicles, FGP is poised to overtake its competitors.

Globally, Ford Motor Co. is doing fine. In 2010, Ford earned $6.6 billion, its largest profit in 11 years, thanks to surging global sales and cost cuts. It was Ford’s second consecutive annual profit, more than twice as much as the $2.3 billion it earned in 2009 when industry-wide sales were in a historic slump. For the second quarter of 2011, Ford’s earnings were $2.4 billion compared with $2.6 billion a year earlier due to increased spending on new-model development and paying higher prices for commodities such as steel and plastics. But Ford reduced its automotive debt by $2.5 billion to $16.6 billion.

So far, Ford has invested $270 million in the PH since its return to the country in 1998. In 1967, Ford already had an assembly plant and later a stamping plant, but closed it down in 1985 when the political turmoil leading to Edsa 1 escalated. FGP is the only car manufacturer exporting CBUs (completely built units) to Thailand, Indonesia, Malaysia and Vietnam. The FGP assembly plant in Laguna can produce 36,000 vehicles a year, but in 2010 its output was only 15,000.

Only 2 nameplates

FGP assembles the Escape, Mazda 3 and Focus, but the 2012 Focus will be made in and imported from Thailand, where the Fiesta, Mazda2, Everest and Ranger are also manufactured. That leaves FGP with only two nameplates— the Escape and Mazda3—although Krieger said that the highest-quality Focus manufactured in Asia came from the PH, where it was assembled manually since the FGP plant has no robots.

Why, then, is the assembly of the Focus being moved to Thailand? Krieger replied that it is cheaper to build cars in Thailand than in the PH. “Scale and size are important,” he pointed out. “The Philippine market is so small, selling only around 175,000 units despite the 100 million population. Malaysia has 30 million people but 800,000 units are sold every year. Thailand has 60 million people but one million units are sold and two million are produced every year.” He added that the cost of electricity in the PH is the highest in Southeast Asia and there are not enough suppliers so that FGP has to import parts from Thailand. No wonder the five manufacturers here, capable of producing 100,000 cars annually, only produce 60,000 and prefer to import cars from Thailand and other countries.

So why does Ford stay in the PH? “Ford has invested $270 million in a plant here. You can’t throw it away just like that,” Krieger said. “You have to amortize that cost. At the end of the product cycle, you have to decide whether to make a new investment for a new vehicle, considering that the market is so small.”

According to a Wall Street Journal article last June, Ford expects 45 percent of global automotive sales to come from the Asia-Pacific region by 2020, dwarfing the Americas’ 25 percent. So Ford began building a $450 million assembly plant in Rayong, Thailand a year ago; placed a $350 million combined investment in a Ford/Mazda joint venture pickup truck plant in Pleukdang, Thailand, last year; will invest $1 billion in northern India for two new factories after investing $572 million on engine and vehicle assembly plants in Chennai, southern India, in 2009; built two new plants and a factory expansion worth $1.3 billion in Chongqing, China; and poured $300 million in Nanchang, China, for an assembly plant to build the Focus.

All this proves that automakers like Ford only invest big bucks in big markets, so special relations or not, the PH doesn’t qualify—not yet, anyway.