Is China Ford's Last Hope?

Under pressure from falling sales and a product line that is out of touch with consumer desires, Ford is in, perhaps, the most dangerous position of the Big 3. As Delphi learned, general cost cutting and finding lower cost sources of supply -- or taking out the hammer and beating your current suppliers to a pulp -- is not enough to stay in the black in a tough market if you're not producing parts or cars that people want in the first place. That's why I'm skeptical that Ford's aggressive move to source more from China will do little more than prolong the giant's agonizing slide into automotive mediocrity. Still, the fact that Ford plans to "double the value of components it buys in China this year" is no small feat. According to the article, "Bill Ford, executive chairman, said in Beijing ... that the group aimed to source $2.5bn-$3bn worth of parts from China, up from $1.6bn-$1.7bn last year."

But in my view, low cost country sourcing will never save a company in the throws of a painful downward spiral. That's why we should all take with a dose of skepticism -- relative to how it will improve Ford's overall financial picture -- Ford's latest move to China. Moreover, one wonders if Ford is moving spend to China simply because it has burned so many bridges with its Western suppliers such as Collins & Aikman. According to Ford follower Tim Minahan, "Collins & Aikman stopped shipments to Ford Motor Company in response to an unresolved pricing dispute between the two firms ... The supplier stopped shipping carpet, instrument panels, and other plastic parts to a Ford assembly plant in Mexico." Adding insult to injury, Ford's investments in lean came back to hurt them as, "The short-term stoppage, which was exacerbated by Ford's ... just-in-time manufacturing approach, halted the production of about 400 vehicles, including Ford's hot-selling small- and mid-size cars. It also had ripple effects, causing other area suppliers to halt production so as not to disrupt Ford’s assembly sequencing queue." Methinks that running away from bad supplier relations in the West will come back to bite Ford in the long run. Perhaps some basic lessons in Guanxi are in order!

Jason Busch

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