INTERVIEW
Ford’s Perspective on the Asian Car Market
Dave Schoch, chairman and CEO of
Ford Greater China, sat down with TOPICS during a recent visit to Taiwan.
The Ford Motor Co. took a number of painful
steps since the economic downturn in 2008 to avoid bankruptcy. It shed
nameplates, shuttered factories, and cut over 15,000 jobs to save the
company from the government bailouts needed to rescue fellow U.S. automakers GM
and Chrysler.
Agonizing though the process was, the company that emerged from the restructuring is leaner, more focused, and heavily committed to growth and investment. The results of the restructuring continue to be seen, as the company has registered 10 straight quarters of profitability and has managed to reduce its debt from a high of US$25 billion to just over US$13 billion.
David Schoch, the newly appointed head of Ford’s Greater China division, played a senior role in these restructuring efforts around the world. As CFO for Ford’s European, APAC, and North American divisions, Schoch had to oversee cutbacks to help save the business. Now, in his current role, he is managing what Ford hopes will be its next big source of growth. After years of relative neglect of the Asian region, where only 15% of its cars are currently sold, the company aims to expand heavily in China and across the Asia-Pacific. Just weeks after opening its second plant in Chongqing, Ford has announced plans for two more factories, in Hangzhou and Chongqing. Ford plans on doubling production capacity in China to 1.2 million vehicles annually by 2015, signs of a broad push into a slowing but still strong Asian market. And while Ford’s shares of the China and India auto markets remain small, no single player dominates these markets and sales are robust across the region.
Schoch recently visited Taiwan to help announce the introduction of four new models to the domestic market. Last month, Ford Lio Ho, the local joint venture, began assembling its popular Fiesta compact cars at the company’s plant in Jungli, Taoyuan County, which also produces the Escape light SUV. Two other popular models assembled at the plant, the Focus and Mondeo (called the Fusion in the United States), have been refurbished for the 2013 model year. Ford is also planning to import the legendary Mustang muscle car into Taiwan for the first time, starting in the third quarter of this year.
Ford entered Taiwan 40 years ago with the inking of a 70-30 joint venture with the Lio Ho industrial group. Despite this long presence, however, the company currently has less than a 6% share of a market overwhelmingly dominated by Japanese brands, particularly Toyota. Ford Lio Ho employs some 1,500 workers and salaried staff. Its plant has the capacity to produce 100,000 units annually, but last year turned out less than a quarter of that number, at just over 22,000.
In an interview with Taiwan Business TOPICS contributing writer Timothy Ferry, Dave Schoch discussed what led him to the helm of Greater China, what Ford is doing to increase manufacturing efficiencies and profits across the globe and what’s next for the automaker in Asia.
After a long career at Ford with a number of international postings, what led you to accept another demanding position overseas?
It was the attraction of accelerating the growth of Ford in Asia. After 34 years with the company, I thought this would be a great way to take all of my skills and experiences to come back into this area and accelerate the growth of the business in China and Taiwan. Let’s face it, we don’t have the presence here that we have elsewhere around the world. Historically, we’ve been a little more conservative in our expansion in China. Now is the chance to really accelerate growth.
When you think about other areas where I’ve been, we had to restructure and reduce capacity. That’s hard work and it’s not pleasant. I was part of a team that had helped turn around North America, where we’re making good progress – we’re not done yet, but we’re making good progress. I thought: where else can I make use of my talents – to grow the business, not shrink the business?
What brings you to Taiwan today?
Ford is celebrating our 40th anniversary with some very good partners – the Lio Ho group. They’ve been outstanding partners for the last four decades. They’re very astute businessmen and bring a lot of business acumen to the joint venture. We have a very transparent, open, and supportive relationship and I say that because I knew them in my prior position as CFO for Asia Pacific – so this is basically getting reacquainted. It’s been a very, very successful joint venture over the years.
What changes has Ford made and how will these changes help in expanding the China market?
When Alan Mulally (Ford Global CEO) came to Ford in 2006, he put together the “One Ford Plan” that’s been really the thrust of our efforts. Several years ago the company said we’re going to go to a global cycle plan with global products. No longer will each business unit be developing its own products. That helps to leverage economies of scale, allowing us to accelerate product growth in markets where we typically haven’t been able to grow much. Having product cycle on a global platform will help Ford move faster in the Asia Pacific.
Had the regional business units been more independent in the past?
In 1904, going way back, Henry Ford went global – to Canada. Those were baby steps of course – he went right across from Detroit – but it was international. Then he went to Brazil in 1917 or 1918, then South Africa in 1924. For Henry, his whole mission in life was to put the world on wheels. When he founded the company, he already had this vision of going global. What happened after that was though he established a global presence, each regional business unit pretty much grew up on its own, with different processes and different processes.
Going back just a decade, the products we had in Europe were totally indigenous to Europe, and the products we had in North American were pretty much indigenous to North America. We didn’t cross-ship, which meant we weren’t cost competitive.
For example, we had three different Rangers. Completely different platforms, but all called Ranger and all half-ton pickups. We had the Ranger that was developed in South America, the Ranger developed in Thailand for the Asia market, and we had a Ranger developed in North America. Just think about that – the same product primarily serving the same function with basically the same intent, but with different platforms, different powertrains, engineered three different times around the globe. You can’t survive in a global environment with three distinct engineering platforms.
What other changes did Ford make under the One Ford Plan?
If you think about the past decade, we had Ford, we had Lincoln, we had Mercury, we had Jaguar, we had Aston Martin, we had Land Rover, we had Volvo, and we had a 34% share of Mazda. Alan (Mulally) stepped back and said, “How can we concentrate and do justice to all of these brands?” And it was at that point that the economy started turning down and we started losing a lot of money.
So we set our sights on selling Aston Martin, Jaguar/Land Rover, and Volvo, we discontinued Mercury, and we sold off most of our interest in Mazda.
What are the market forces that make common product platforms viable?
What’s happened over time is that consumers’ tastes have also converged with the sharp increase of Internet use. People around the world see global, world-class products, and they say: ‘I want that.’ So we’ve seen a convergence of tastes that has allowed these global platforms to be the basis for our strategy.
Does the One Ford Plan allow for customizing vehicles to suit local needs and wants?
Probably 80% of our platform is common, giving the engineers in the local markets roughly another 15-20% to meet local needs, local wants, and local customer expectations. For instance, in Taiwan, customers like a lot of “brightwork” – a lot of chrome fixtures. Chinese consumers at least initially liked more legroom in the rear seats. We need to cater to that.
How does Ford identify common elements in its product design?
The way the process works is that in the very up-front stages of product development we gather market information. For instance, in developing the Focus, we got product input from Taiwan, from China, from Europe, the U.S., Canada. Now obviously you’re constantly making tradeoffs – you can’t be all things to all people. But the fundamentals of the platform are sound – leveraging the engineering wants with the volumes associated with global business. For the Focus platform, we’re going to be over 2 million units this year around the world. So we’re taking that platform and leveraging it globally for a substantial reduction in investment.
What common elements have you identified?
We’ve identified four pillars on which we base our whole product strategy. They are quality, green, safe, and smart. As we thought about going global and what we wanted to stand for around the globe, these are the four pillars we thought every customer would be able to relate to and to value.
Quality is the price of entry into the market. All customers around the world want a vehicle that they perceive has value and high quality, and that is going to last and give them value for their money. That’s reflected in residual values which affect the total cost of ownership.
We also know that fuel economy is very important to customers. As the price of gasoline continues to rise, it’s becoming even more important. CO2 emissions are also very important, and we’re trying to reduce emissions from our vehicles. Unfortunately, you’ve got some cities like Beijing and Shanghai and Chongqing where the amount of pollution is very high. We need to do something about it.
And of course we want our customers to feel safe in our cars.
What does Ford mean by “Smart”?
“Smart” is all about technology, not just advanced technology in the powertrain and transmissions and the ride and handling – which Ford has – but also the customer interface. When customers get into a car, they want to continue to be linked to the outside world just as they are with their iPhones. We saw that in the U.S. – obviously in English – but as we expand around the world, one of the things we need to do is to expand into different languages.
U.S. car makers have suffered from a reputation for dubious quality over the past few decades. How has this affected Ford’s brand image?
Japanese car makers entered the U.S. with a lot of fanfare but a lack of quality, and it really dragged them down. One day they woke up and realized how much quality means to a customer, and they dramatically improved their quality and shot right by domestic manufacturers. They understood how the customer perceives quality.
We get it at Ford. We took our eye off the ball on quality, I think, and it showed. Our residual values fell, our brand image fell. But if you look at Ford quality over the past four or five years, there’s been a steady trend of improvement.
What are some ways that Ford is reducing the environmental impact of its cars?
We spent a lot of time and attention on our powertrain strategy. Throughout the world we’re in the process of introducing the Ecoboost engine, a smaller engine with higher output. On average, it will reduce our fuel consumption by around 20% and reduce our CO2 emissions by around 15%.
The other thing on the green front is advanced technology powertrains such as hybrid electric, plug-in hybrid electric, and battery electric vehicles. Now, we're at an inflection point. There’s a lot of technology, but frankly we don’t know which technology is actually going to win out. We’re going to give the customers choice. We’re not going to make the call and tell the customers what they want, but here again the One Ford Plan is paying off, as the company is able to offer a variety of powertrains on a single platform.
For instance, the Focus. You can get the Focus in the U.S. in petrol, in Europe it’s petrol and diesel, and we’ve also designed it so the Focus can be a regular hybrid, a plug-in hybrid, or a battery electric.
What are the prospects for electric and hybrid vehicles in the global and Asia-Pacific markets?
The EV market is still very young and fragile, to some extent. There are a lot of people who want to go green, but frankly when they see the price tag it puts them off, because there aren’t enough economies of scale yet around pure electric to make it viable. All governments are pushing electric, but the markets really haven’t developed yet.
Electric vehicles require an infrastructure. You’ve got to be able to plug the vehicles in. In big cities, you can’t have extension cords coming out of high-rise apartment buildings. The infrastructure is going to have to develop along with the battery technology.
What we’re finding is that there’s a larger market for hybrid vehicles, and Ford hybrid vehicles are doing very, very well. But think about where the electric market was five years ago. It didn’t really exist. With all the technology investment that’s gone into it, somebody’s going to figure out the solution to the infrastructure problem some day. That’s why you’ve got to stay in the game – we want to make sure we’re there and on the leading edge. We’ve got the vehicles, we’ve got technology, and we’ve got the ability to bring electric vehicles if we find the market is there.
