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The challenges for Chang’an, Ford and Mazda

On November 30, 2012, Chang’an Automobile Corp., Ford Motor Co. and Mazda Motor Corp. jointly announced that they have obtained final approval from Chinese authorities to split their three-way joint venture Chang’an-Ford-Mazda Automobile Co., Ltd. (CFMA).

Effective immediately, CFMA will break into two 50:50 JVs: Chang’an-Ford Automobile Co., Ltd. (CFA) and Chang’an-Mazda Automobile Co., Ltd. (CMA). CFA will remain in Chongqing and assume all of CFMA’s Ford-related business, including developing, manufacturing, marketing and sales of Ford-branded vehicles in China. CMA will move to Nanjing, Jiangsu Province, and assume all of CFMA’s Mazda-related business.

The three companies, which had previously submitted the restructuring plan to local and central government officials so that they could optimize their respective business structures and operations to better meet Chinese market demand, said their partnership “will continue at a strategic level, in areas of benefit to all parties.”

The CFMA “breakup” has long been expected in the industry. Although all three partners claim that the split would help optimize their respective business structures and operations, the timing of the split, amid a market slowdown and various levels of pressures faced by the three companies, casts some serious doubts.

Can CMA tide over market impact on Japanese brands?

Japanese brands, Mazda in particular, have been going through perhaps the most difficult times in China. Can CMA tide over or even survive this dire market slump?

Just three days after the joint announcement from the three companies, Mazda said its November sales in China fell 29.7 percent to 12,187 units. Over the first 11 months of 2012, sales were down 11 percent to 169,814 units. That total includes 101,072 vehicles sold by FAW-Mazda and 67,742 vehicles by Chang’an-Mazda, down 16.1 and 2.7 percent respectively.

Mazda’s monthly sales in China had been falling starting from the beginning of 2012, well ahead of the diplomatic row between China and Japan in August, which means its products are losing interest among Chinese consumers. Since September, the situation has gotten only worse.

Chang’an-Mazda’s January-November sales translate into a monthly average of some 6,000 units, calling into question if such demand would sustain the assembly operation at the Nanjing plant.

The split is ill-timed for Mazda that has sought independence from Ford in China for many years.

Would “One Ford” work in China?

How will Ford deal with the added capacity at CFA when over the years it has only depended on just a couple of mid-level models for most of its car sales in China? Or put it another way, would “One Ford” work in China?

Ford, thanks to its aggressive cost-cutting and downsizing over recent years, was the only automaker among the U.S. “Big Three” that avoided bankruptcy. But the “One Ford” plan that saved Ford in the U.S. has yet to bear fruit in China.

If we look at the top passenger vehicle makers in China, all of them have a multi-brand strategy in place. GM offers five brands (Buick, Chevrolet, Cadillac, Wuling and Baojun). Volkswagen has three (Volkswagen, Audi and Skoda), and Hyundai-Kia has two. Ford has only one brand in China and lacks product models that sell. Its target of selling a million vehicles a year in China probably will be unattainable for years to come.

Is overreaching Chang’an of help to CFA and CMA?

Finally, how will Chang’an, which has set up numerous JVs, acquired numerous companies across China and started making all lines of passenger and commercial vehicles, help CFA and CMA grow?

Chang’an is one of the most “flirting” Chinese OEMs taking over multiple partners to set up JVs. But CFA ranks at best only as No. 10 in sales. Chang’an-PSA has not started production and its so-called high-end Citroën DS brand remains a question mark. Chang’an is also faced with falling market share in the microvan segment even after acquisitions of Changhe and Hafei. What capabilities does it have to help build a bigger and stronger CFA and CMA? If it did have such capabilities, it could have made Chang’an-Suzuki, Changhe-Suzuki or even Hafei bigger and stronger in the first place.

If the above challenges are not dealt with in a short period of time, the futures of the split JVs may be questionable.

(Rewritten by Lei Xing based on author’s article in International Business)

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