Yahoo Finance Is Ford's Fusion Factory Moving to China?
Will Ford Motor Company (NYSE: F) build the next-generation Fusion sedan in China?
That possibility was raised by a surprising report on Wednesday. Ford responded with a carefully parsed Ford denial that didn't quite deny that something drastic is in the works for the upcoming all-new Fusion.
Here's what we know, and what Ford might actually have in mind.
What we know about Ford's plans for making the next Fusion
Before we get into the details, a note to avoid confusion: The midsize sedan that Americans know as the Ford Fusion actually has two names. In many markets outside of North America, including Europe and China, it's known as the Ford Mondeo. The Fusion and Mondeo have small differences, but from Ford's perspective, they're the same product.
In other parts of the world, the Ford Fusion is known as the Ford Mondeo. The Fusion and Mondeo have small differences, but the thing to remember is that from Ford's perspective, they're the same product. Image source: Ford Motor Company.
Right now, Fusions sold in North America are made in Ford's factory in Hermosillo, Mexico. Mondeo sedans for the European market are made at Ford's facility in Valencia, Spain. Ford also builds and sells the Mondeo in China.
Got it? Now for the report: Ford has told suppliers that it's planning to shift production of the Fusion and Mondeo sedans out of Mexico and Spain and move it to China when the next-generation Fusion and Mondeo are launched in late 2020. That's according to a Reuters report that cites three unnamed sources.
Doesn't that mean Ford will export the Fusion and Mondeo from China to North America and Europe? It sure sounds that way, and that's how Reuters initially reported the story. But it updated the article to step back from that conclusion after Ford's PR folks pushed back on the initial report with this statement:
We have no plans to export the next-generation Fusion/Mondeo from China to North America and Europe. Fusion/Mondeo are an important part of the Ford car lineup. We will have more information to share about the next Fusion/Mondeo at a later date.
So, what's going on, here? Let's look a little deeper.
Why Ford might do something like this -- and why it might not
Here's something else we know: Fusion and Mondeo sales are down big this year. Through November, U.S. sales of the Fusion are down 22%, and Mondeo sales in Europe are down 21%. Those declines are consistent with an industrywide trend that has been unfolding for several years now: More buyers are choosing crossover SUVs over traditional sedans.
Automakers (not just Ford) are responding to that trend by boosting investment in crossover models and reducing investments in sedans. General Motors (NYSE: GM) has said that the next-generation versions of its compact Chevrolet Cruze and midsize Chevrolet Malibu sedans will reuse the vehicles' current architectures, making their revamps much less expensive than the traditional all-new models. And Fiat Chrysler Automobiles (NYSE: FCAU) has completely discontinued production of its compact Dodge Dart and midsize Chrysler 200 sedans, revamping the cars' assembly lines to build SUVs and trucks instead.
Likewise, Ford has made some sedan-related cost-cutting moves of its own. It's reducing the number of possible order combinations on models like the Fusion and compact Focus in order to reduce manufacturing costs. It has confirmed that the next-generation Focus will be built in China and exported from there to North America, and signs suggest it is discontinuing the subcompact Fiesta altogether in the United States. (Ford launched an all-new Fiesta in Europe earlier this year; the Fiesta is Ford's best-selling vehicle in Europe, but the new little hatchback doesn't seem to be headed here.)
Ford Mondeos move down the assembly line at Ford's factory in Valencia, Spain. Image source: Ford Motor Company.
Given all of that, it would make a lot of sense for Ford to centralize global production of the Fusion and Mondeo on one big assembly line, and for Ford to put that line in a factory where its costs are lower. But it's unlikely to be Mexico, given that the Trump administration may tear up the North American Free Trade Agreement. That could greatly complicate the now-common practice of building vehicles in Mexico for the U.S. market (and not just for Ford).
There's a good reason, other than Ford's denial, to think that Ford won't choose China for that big factory. The Ford factory in China that would be likely to build the Fusion and Mondeo is owned by a 50-50 joint venture between Ford and Chinese automaker Chongqing Changan Automobile Co., Ltd. ("Changan Auto"). If Ford built all of its Fusions and Mondeos at that factory, it would have to split the revenue 50-50 with Changan Auto.
Ford is apparently willing to do that with the lower-margin Focus. But I don't see it happening with the more profitable Fusion and Mondeo.
Here's what might really be going on, here
Taking Ford's statement at its word, there seem to be only two possible conclusions: Either Ford is planning to drop the Fusion from its U.S. lineup entirely, or it's planning to build Fusions for North America (and Mondeos for Europe) somewhere other than China, Mexico, or Spain.
Where might that be? Here's one more thing we know: Ford has two underutilized factories in India, and it has said in the past that it might use those plants to make products for export. At the current rate of sales, Ford would need something like 300,000 total Fusions and Mondeos a year to supply North America and Europe; that would require expanding one of the plants somewhat, but it's not at all an unreasonable number.
Is it possible that Ford's real plan is to produce the next-generation Fusion and Mondeo for North America and Europe in India, rather than China? Stay tuned.
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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.
