Ford to Build Subcompact Car in Brazil - aftermarketNews
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Ford to Build Subcompact Car in Brazil

Ford Motor Co. will build its forthcoming subcompact sedan for the North American market in Brazil, in what is considered by some to be a risky attempt to generate profits in that segment of the U.S. market. Ford has chosen its Sao Bernardo Assembly plant in the state of Sao Paulo as the source for the critical small car, according to officials at Ford and two automotive consulting firms -- Global Insight and CSM Worldwide – briefed on the issue. The vehicle is set to launch in the 2009 to 2010 timeframe, said the officials who requested anonymity because Ford hasn't publicly disclosed the plan.

From AFX News Limited

DETROIT — Ford Motor Co. will build its forthcoming subcompact sedan for the North American market in Brazil, in what is considered by some to be a risky attempt to generate profits in that segment of the U.S. market.

Ford has chosen its Sao Bernardo Assembly plant in the state of Sao Paulo as the source for the critical small car, according to officials at Ford and two automotive consulting firms — Global Insight and CSM Worldwide – briefed on the issue. The vehicle is set to launch in the 2009 to 2010 timeframe, said the officials who requested anonymity because Ford hasn’t publicly disclosed the plan.

The subcompact sedan to be built in Brazil is one of the future products seen as essential to the struggling automaker’s turnaround hopes. Ford is one of the only major automakers not selling a subcompact car in the United States. The segment is growing at about a 90 percent rate as high gasoline prices continue to pressure consumers and new subcompact lure new buyers into what had previously been a dying segment.

The Dearborn, MI, automaker’s decision to import from Brazil follows moves by its domestic competitors to build similarly sized cars outside the United States and import them to the United States. The General Motors Corp. subcompact Chevrolet Aveo is assembled in South Korea and the DaimlerChrysler AG Chrysler Group has struck a deal with a Chinese automaker to build similarly sized cars in China.

Ballooning labor costs are pressuring U.S. automakers to invest in manufacturing sites outside of North America for several categories of vehicles that will be sold in the United States. Big Three executives are expected to reference their growing importing activities as a negotiating tactic during labor contract talks slated to begin in July, people at each of the automakers said. Automakers will say they will continue to import more and more cars to the United States if they are unable to cut U.S. labor costs.

Ford spokesman Said Deep declined to comment on the company’s future plans related to the production of subcompact cars for the U.S. market.

Ford’s European unit, in cooperation with Mazda Motor Corp., is currently leading development of a new subcompact car that will be sold in several markets around the world, including China and the United States. Concept versions of the small car will be unveiled later this year at auto shows in Frankfurt and in China, followed by a concept version to be shown in Detroit in January.

Ford’s decision to pick Brazil could give a boost to the country’s automotive industry, which is pursuing growth through both a strengthening of the home market and new export opportunities. Several automakers have announced new investments and plans to hire more people in the country.

But Ford’s strategy to be the only domestic automaker exporting light-vehicles to the United States could be laden with risks.

Global Insight analyst Pascual Francisco said Ford is "making a mistake" by choosing Brazil for three reasons. He insists vehicle quality in Brazil remains a question mark, currency exchange with the United States is unfavorable for U.S. automakers, and the heavily industrialized Sao Paulo region is largely unionized and the most expensive production location in Brazil.

Francisco noted Volkswagen AG had been importing Brazilian-made Volkswagen Golf compact cars to the United States until 2005, but stopped because of quality problems.

"I highly doubt they are going to be profitable," Francisco said of Ford’s venture. He said he tried to dissuade Ford from choosing Brazil, but they declined to take his advice.

Ford executives were considering building an entirely new plant in Mexico for the product, but decided against that plan because it has existing capacity in Brazil. CSM Worldwide’s Paulo Cardamone, who heads the automotive consulting firm’s South America practice, says the move to not build in Mexico could save Ford hundreds of millions in critical capital because it will be updating an existing facility rather than building an entirely new site.

The Brazil production decision calls into question Ford’s plans for Mexico after reports surfaced a year ago saying the automaker is planning to invest as much as $9.2 billion in operations there. The automaker has already said it will revitalize three manufacturing plants in Mexico in coming years, but it remains unclear if the company will build a new car assembly plant in the country.

Copyright 2007 AFX News Limited. All Rights Reserved.

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