Fresh blood for Ford in China
Published on July 28, 2011 by Tycho de Feijter
Ford is way behind its rivals on the biggest car market in the world. Not enough cars, not enough local production, not enough marketing (seen any?), not enough dealers and no vision. This might all change with the new man Joe Hinrichs. ChinaDaily did an interview with Hinrichs on Ford’s future in the Middle Kingdom:
BEIJING – Joe Hinrichs, the new chairman and chief executive officer of Ford China, is a man of relentless energy.
The 44-year-old, who admits to a diet fuelled by steak and hamburgers, was up at 4:30 am to catch a flight to Beijing from Shanghai, where he is based, but still intended to be working out at his hotel gym after dinner.
“My job, especially with all the travel, requires an immense amount of energy and I find I do this job better if I keep physically fit,” he said.
The United States Midwesterner, who was speaking at the company’s office at the Beijing Yintai Centre in Jianguomenwai Street, needs to bring all his life force to his current role.
Ford has fallen behind in China to rival car companies such as General Motors, the latter selling more cars in the world’s second-largest economy than in the United States.
But this could be about to change. Ford announced earlier this month sales in China of 274,510 in the first half of this year, a 14 percent increase on the same period last year and much faster than the market as a whole.
Hinrichs believes it, too, could outstrip its US sales in China but is making no forecast.
“I think it could happen. There’s potential someday. I don’t think it’s anywhere near happening in the medium term,” he said.
He took over his current role from Robert Graziano, who has left to head the company’s Australian office, in November last year.
He retains the position of president of Asia-Pacific and African region and is one of the most senior figures in Ford worldwide, reporting directly to Alan Mulally, the company’s high-profile president and CEO.
Hinrichs said one of the key challenges for Ford is to build its sales operations in China.
It is opening dealerships at the rapid rate of two a week aiming to bring its total to 680 by the middle of the decade. The key target is China’s smaller cities.
“They’re critical. Most of the dealership growth is occurring in second- and third-tier cities and, next year and beyond, fourth-tier cities and beyond. I think the fourth-tier cities are starting to get there but fifth- and sixth-tier cities you could turn up there and there would be no dealership,” he said.
Ford is also one of the few companies to fully embrace building up manufacturing capacity in western China, currently building three factories in Chongqing as part of a $1.6 billion investment that also includes another plant in Nanchang, southeastern China’s Jiangxi province.
The company does not have a major a presence in China today largely due to the company’s recent turbulent history.
Its acquisitions in the 1980s and 1990s of high profile European businesses, including UK car companies Jaguar, Land Rover and Aston Martin as well as Swedish giant Volvo, proved financially draining.
After these businesses were restructured, the company’s key North American business started hemorrhaging cash in 2005 and key members of the management team, including Hinrichs, who was then heading Canada operations, were called back to the company’s Detroit headquarters.
“It was ‘all hands on deck’. The North American business was really bleeding a lot of red ink, and we really focused everybody’s attention on ‘we gotta save the ship because there’s a big hole in it’,” he said.
“This part of the world (China) was relatively small at that point in time, but it was starting to take off, and we were too busy focusing on everything else.”
The subsequent mid-decade reorganization has meant Ford fared better in the financial crisis than General Motors – which notoriously had to file for bankruptcy protection – and now has a strong platform from which to attack China.
Hinrichs believes the timing could not be better since millions of people throughout the country are beginning to hit the key $5,000 to $6,000 per capita income level when they make their first car purchase.
“That’s been true for the last 100 years even in markets we now consider to be mature what happens to the industry is it takes off when major parts of the country hit that threshold,” he said.
Hinrichs, who obtained a magna cum laude first degree in electrical engineering from the University of Dayton in Ohio, began his career with General Motors, whose culture he believes is different from Ford’s.
“They are very different. It is not my place to speak about General Motors too much. It’s an overused saying but Ford is a family company,” he said.
He joined Ford in 2000, managing a plant in Michigan, before being promoted to a whole series of high profile roles, China being the latest.
Hinrichs is a great believer in management ideas and is also a voracious reader of business books.
“My wife tells me, ‘Why don’t you read something for fun’? But, to me, business is fun,” he said.
One of his key management philosophies is to build on the strengths of individual employees rather than attempt to correct their weaknesses.
“You should focus on leveraging people’s strengths and not obsessively spend all your time trying to make people’s weaknesses better,” he said.
One of the things Hinrichs has to do is untangle Ford’s complex ownership structure in China.
As a foreign company, Ford has to operate in a joint venture arrangement with a Chinese company.
In its operation, Chongqing-based Chang’an Automobile Group has a 50 percent stake, Japanese carmaker Mazda (in which Ford is a major shareholder) 15 percent and Ford itself 35 percent.
Ford has submitted a plan to the Chinese government seeking to allow Ford and Mazda to develop their businesses independently.
“The proposal is still awaiting approval. There has been a lot written about it, but we haven’t publicly discussed what’s in the proposal for all parties’ sakes,” he said.
Ford is planning to bring 15 new models to the China market in the next five years, which he hopes will appeal to the many potential customers who have yet to buy a car in their lives.
“Roughly two-thirds of the buyers in China are first-time buyers. They’ve never bought a vehicle before. Most sales in other markets are replacement vehicles. That makes China different,” he said.
Hinrichs says the financial crisis, which saw a major slump in car sales in the US and in Europe, means the center of gravity for the car industry has shifted eastward.
“The balance of power in the growth of the auto industry is migrating east. Roughly, one out of four vehicles sold in the world last year was in China. I mean, that’s unheard of,” he said.
Hinrichs said it is important not to ignore recent warnings of an asset bubble in China, which could result in a growth slowdown.
“There’s no question. History teaches us a lot of lessons. And one of those lessons is that no one has a straight linear line right up,” he said.
But he adds: “By 2020 the numbers show that about 1 billion people in China could reach the threshold where they could afford to buy a vehicle. So the demand dimensions of the facts aren’t going to change.”