Ford Seeks to Skirt Tariffs by Speeding China-Built Lincoln Plan
Ford Seeks to Skirt Tariffs by Speeding China-Built Lincoln Plan
(Bloomberg) -- Ford Motor Co., banking on China to revive its long-lagging Lincoln brand, is trying to accelerate plans to begin building its luxury models there and avoid profit-sapping tariffs brought about by President Donald Trump’s trade war.
Ford, which had planned to start production of Lincoln models in China in late 2019 with a local partner, is trying to move that timing up, even if slightly, to help overcome tariffs China has imposed in retaliation to levies by the Trump administration.
“What we want to do is accelerate that,” Joy Falotico, head of Lincoln and Ford’s chief marketing officer, said in an interview. “We will look for opportunities, but it’s a big undertaking and I think it won’t be a significant change in our plans.”
Even a small move would help Lincoln, which lacks the local production most of its competitors have in China. Prices have soared as a result of the 40 percent tariffs the country has put on U.S.-built vehicles. Ford is absorbing some of those costs, but Lincoln’s sales have still slowed to a crawl.
Falotico spoke ahead of the unveiling of the three-row Aviator at the Los Angeles Auto Show on Wednesday. The model -- one of three sport-utility vehicles Lincoln is launching in China -- will go on sale in the second half of next year in the country, as well as in the U.S.
Ford Chief Executive Officer Jim Hackett has said Trump’s metals tariffs will cost the automaker about $1 billion in annual profit. In August, the company scrapped a plan to export a new model called Focus Active from China into the U.S. Several of the automaker’s top executives have called for Trump to resolve its trade dispute with China.
Tariff Headwinds
Lincoln is also reconsidering plans to export Chinese-built models back to the U.S., Falotico said. Instead, the automaker will likely build the same models in both countries.
“It’s about ensuring our competitiveness with the pricing given the tariff headwinds,” she said.
The fallout from the trade war came at a bad time for Ford, which was pinning its hopes for growth on a country that it expects to become Lincoln’s top market. After soaring 66 percent last year, China deliveries for the luxury line are up just 3 percent through October, and slumped 6 percent last month.
Chinese Tastes
The Aviator was designed with Chinese tastes in mind. Ford lowered the door handles for the nation’s comparatively shorter travelers and styled the second and third rows to be more opulent than the front seats, since many wealthy consumers in the country have chauffeurs.
To meet China’s stringent new emissions rules requiring vehicles to be battery-powered, the most expensive version of the Aviator is a plug-in hybrid with an electric motor mated to a twin-turbo gasoline engine. The combination of the two power plants gives the SUV 450 horsepower, on par with the ponies Porsche offers in its plug-in Cayenne SUV.
“We’re not trying to be a race car,” John Davis, chief engineer of the Aviator, said in an interview. “But we know premium customers are really interested in performance, frankly, more than they’re interested in fuel economy. And in this case, they get both.”
Baked-in Costs
Packed with technology like the ability to use your smartphone as the car’s key and designed to resemble the downward slope of an airplane wing, the Aviator has the ability to propel Lincoln to “exponential growth” in China by 2020, Falotico said.
But Trump’s trade war with China may bring even Ford’s best-laid plans for the Aviator back down to Earth. Ford is baking the cost of tariffs into its business plan, presuming they won’t go away any time soon, Falotico said.
“We’re planning that what we have today is what we need to build our business around,” she said. “Any relief to that would be good news.”
To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net
To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Cecile Daurat
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