Both investments were made with Mazda, the profitable Japanese company that Ford controls through a 33.4 per cent stake, a partnership that provides the troubled American carmaker with both cash and manufacturing expertise. “We’re looking for profitable growth,” said Ford’s Executive Vice-President for Asia and Africa John Parker. “You have to put some foundations in place.”

Ford’s strategy appears to be to save money by radically slashing operations in North America while making money by expanding in the growth markets in Asia and elsewhere outside the United States. The company announced staggering worldwide losses of $12.7 billion last year, and said it planned to idle or close 16 North American facilities by 2012, including seven vehicle assembly plants.

Ford’s operations outside the United States give the company a lifeline of liquidity, including $551 million of pre-tax profit in South America in 2006, $469 million in Europe and $168 million through its association with Mazda. “China is doing very, very well for them,” said John Bonnell, Head of research at Automotive Resources Asia, a consultancy with offices in Thailand and China. “They’re playing catch up.”

Ford lost $185 million in Asia in 2006, mainly due to a collapse of sales in Taiwan and shifting tastes in Australia away from larger cars, but rebounded in the second quarter this year to a profit of $26 million. The manufacturing plant in Thailand will produce 1,00,000 small cars, 80 per cent of which will be exported to other Southeast Asian countries as well as Australia, New Zealand and South Africa. Ford has “no plans” to export the small passenger car, known in the industry as a B-class, to the US, Mr Parker said.

Exporting to the US could raise the ire of the United Automobile Workers, the labour union facing layoffs as part of Ford’s restructuring programme under Alan Mulally, President and Chief Executive, appointed in September 2006 to help turn around the carmaker. Talks between the union and General Motors led to a strike, while Chrysler is being threatened with a walkout in ongoing talks. Ford is next in line for negotiations.

Chicken tax
Ford did not disclose the salary it pays its workers in Thailand, but salaries in the industry start at about $200 a month for a skilled car factory employee in the country,  a fraction of what US workers make. Thailand will export an estimated 6,25,000 vehicles this year, 70 per cent of them pickup trucks, out of a total production of 1.25 million vehicles.

US pickup truck manufacturers are protected from foreign competition by a 25 per cent tariff imposed in the 1960s and known colloquially as the chicken tax, because it was initially imposed as retaliation for duties imposed on American chicken exports. “At some point it will make sense for Ford to lobby the US government to lower its import tariffs for trucks,” said Frederic Neumann, Chief Thailand Economist, HSBC.

Ford and Mazda’s investment helps cement the place of Thailand as the third-largest Asian car manufacturer after Japan and South Korea and as a car manufacturing export hub for the Southern Hemisphere. The fact that Ford and Mazda are expanding into small cars, helps Thailand diversify away from pickup trucks.

Vote of confidence
Last week, the Thai board of investment approved plans by Honda Motor to double its annual production capacity in the country to 2,40,000 cars, including a small “eco” car. Japanese carmakers led by Toyota have gradually shifted segments of their production to Thailand over the past decade. Nissan, Mitsubishi, Isuzu, and its partner, General Motors, also have major manufacturing plants in the country. “It’s a big vote of confidence for Thailand,” said Mr Neumann, referring to Ford’s and Mazda’s investment.

“Strategically, it’s great for Thailand to capture this industry.” Thailand Automotive Institute President Vallop Tiasiri says Thailand will have a manufacturing capacity of two million cars within 5 years. Thai media have reported that Volkswagen, which has no significant presence in the country, is also considering using Thailand as base for spare parts manufacturing. Volkswagen Spokeswoman Stella Pechmann did not return calls and e-mail messages asking for comment.

Political uncertainty
The investments by Ford, Mazda and Honda into Thailand come despite political uncertainty in the country. The generals who took power in the coup last year have scheduled elections for December, but questions remain over the role of the military in politics after elections. 

Mr Parker of Ford said that questions about the country’s stability were raised at Ford board meetings but that he argued that the current problems were “Short-term political disruptions.” Mr Parker said, “When I present to the board, I present to them a 10-year situation in terms of Thailand. Over the long term we’re positive.”

Mr Parker left open the option that the facilities could be expanded further. Ford officials earlier this year had spoken about investing $1 billion in Thailand. The decision to invest half that amount, Mr Parker said, represented Ford’s “Initial investment.”

Source: International Herald Tribune