Ford JV Gets Final Nod for Split - Analyst BlogTuesday, December 04, 2012
Ford Motor Co. (F), Mazda Motor Corp. and China’s Chongqing Changan Automobile Co. have received the final approval from China’s central government to split their three-way manufacturing and sales joint venture (JV), Changan Ford Mazda Automobile (CFMA) into two.
Ford owns a 35% stake in CFMA, with Changan holding 50% and Mazda the remaining 15%. CFMA has two major manufacturing bases in China, located in Chongqing and the eastern city of Nanjing.
After the split, the two 50-50 joint ventures, Changan Ford Automobile and Changan Mazda Automobile will own and operate Chongqing and Nanjing operations, respectively. Changan Ford Automobile, involving CFMA’s Ford related business, will be controlled by Ford and Changan and Changan Mazda Automobile, involving the JV’s Mazda-related business, will be operated by Mazda and Changan.
The plan to split the three-way JV originated with Ford’s desire to severe ties with Mazda in 2008, when the former reduced its stake in the latter to 13% from 33% and later in 2009 to 11% in order to raise cash during the global economic crunch. Late 2010, the Detroit automaker further reduced its stake in Mazda to 3.5% from 11%.
The partnership between Ford and Mazda began in 1979. Through the partnership, Ford intended to develop small and fuel-efficient cars using Mazda’s technology while Mazda depended on Ford to fund its research and development activities.
As Ford stepped back, Mazda sought Toyota Motor Corp.’s (TM) help in 2010 to obtain key components of hybrid systems – batteries, motors, control units and other electronic parts – from the latter, through a hybrid technology tie-up.
Ford has embarked upon an aggressive expansion plan in China that includes plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. Currently, the company sells seven models in the country.
In order to develop the new models, Ford will build new plants raising its capital spending to about $6 billion annually by mid-decade from $4.3 billion in 2011. In order to keep pace with the expansion, Ford also plans to double its workforce by hiring 1,200 employees by 2015.
Ford anticipates global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020 compared with 48% presently. One third of the small car sales are expected to come from Asia.
Ford, a Zacks #3 Rank (Hold) stock, manufactures Focus, Fiesta, Mondeo and other models in China through CFMA. It also holds a 30% stake in Jiangling Motors Corp. that makes light commercial vehicles in the country.
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