Ford Motor Inc. To Invest $1 Billion In China Plant

Dearborn-based automaker to utilize money to purchase existing plant from struggling Chinese automaker,raises questions from investors regarding location and economic situation

Ford Motor Inc. (F) has announced an investment worth $1 billion for a new plant in China, but the automaker giant will build it in collaboration with a Chinese JV partner, and most of the investments will be spent on buying an existing facility that was sold out by a struggling Chinese automaker, Hafei, in the market.

Such a move by Ford raises eyebrows, especially among other automakers, such as 

Mercedes, BMW, Audi, to question the need to purchasing extra capacity in the market, particularly some overtly ambitious Chinese automakers are making a mark for themselves. The new factory will be located in the remote northeastern city of Harbin, the capital city of Heilongjiang, one of China’s poorest provinces. It is rather not quite an ideal destination to conduct such business activities if the province’s population does not have adequate spending power. Thus, it might be appropriate for the company to produce the cars cheaply or at least making it affordable whilst minting a high quality.

This announcement is separate from the one that Ford made back in October last year, when it announced almost the same amount, albeit $500 million more, in which it would build a second plant and expand its factory in the southwest city of Chongqing. This decision would result in tripling production of its car units to almost 150,000 units.

At the time of the announcement, the Chinese economy reportedly grew from 6.7% to more than 9% in the last quarter of 2014. However, with the slowdown in the Chinese economy becoming more apparent, due to a string of disappointing economic reports, the move of additional investment by Ford leaves people wondering about the logic behind increasing more capacity. The curiosity rose at a time when the Chinese government is taking measures to clean up its polluted air environment in Beijing, as it focuses more towards sustainable and quality growth, rather than entering into the debt trap by wasting money on useless and unproductive ventures.

Ford did not respond to e-mails or calls when contacted to explain the rationale for this latest investment venture. Ford stock has traded at a range of 15.90-16.10 as per news, at a gain of more than 0.25%. Investors have been mostly lukewarm about this idea, which means that they also have a number of questions to be answered by the company, in which their planned investment falls at odds with the opposite direction taken by the Chinese economy.