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Ford Uses Profit to Chase Rivals in Emerging Markets

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Ford Uses Profit to Chase Rivals in Emerging Markets (Update2)

By Jeff Green

April 9 (Bloomberg) -- Ford Motor Co., profitable last year for the first time since 2005, is stepping up spending in fast- growing markets in South America and South Africa to help catch up to General Motors Co. and Toyota Motor Corp.

“Ford was very, very unhealthy just a few years ago, but now they are able to start investing again,” Rebecca Lindland, an IHS Global Insight Inc. forecaster, said in an interview today. “The places they are investing are seen as the growth markets.”

Spending to retool factories will increase by $207 million in South Africa, $282 million in Brazil and $250 million in Argentina, Ford said this week. Industrywide global sales may rise 4 percent to 66.9 million autos in 2010, researcher J.D. Power & Associates estimates.

After shunning a U.S. bailout and avoiding bankruptcy, Ford reported $2.7 billion in net income in 2009, ending losses totaling $30 billion in the three previous years. Capital spending may increase $1 billion in 2010, Chief Financial Officer Lewis Booth said in a February interview.

“Despite being a top-five automaker in the world, Ford trails the top players such as Volkswagen and GM in many emerging markets,” said Brian Johnson, a Barclays Capital analyst, who rates Dearborn, Michigan-based Ford “equal weight.”

Ford has about half the sales of GM, Volkswagen AG and Fiat SpA in South America and is well behind in South Africa, said Johnson, who is based in Chicago. Toyota is the world’s largest automaker.

Ford rose 9 cents to $12.72 in New York Stock Exchange composite trading. The shares have gained 27 percent this year after surging more than fourfold in 2009. About 46 percent of Ford’s $118.3 billion in 2009 revenue came from outside North America.

Ford’s 7.45 percent notes due in July 2031 rose 0.625 cent to 93 cents on the dollar in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Overseas Investments

The $739 million in new spending in South Africa and South America follows investments of at least $1.49 billion spread among China, India and Thailand to bolster sales in Asia.

Deliveries in Asia may increase 9 percent this year to 25.9 million vehicles, led by 12 percent growth in India and 8 percent in China, according to Westlake Village, California- based J.D. Power said.

South Africa may post a 14 percent gain this year, according to Lexington, Massachusetts-based IHS Global Insight.

Ford will upgrade and expand its assembly plant in the South African capital, Pretoria, and its engine factory in Port Elizabeth, according to a statement yesterday.

The 3 billion rand ($415 million) investment will boost annual capacity at the Pretoria factory to 110,000 vehicles, with two-thirds expected to be exported to countries in Africa and Europe, Ford said. Production on a new compact pickup truck is scheduled to start next year, Ford said.

South America

Auto sales may rise 15 percent this year in South America, J.D. Power projected. Brazilian sales may rise 12 percent this year to push the country past Germany as the world’s fourth- largest auto market, after China, the U.S. and Japan, J.D. Power projected.

Ford is investing $3 billion in the region through 2015. Chief Executive Officer Alan Mulally said yesterday in Brazilia that Ford will spend 500 million reais more than planned in Brazil from 2011 through 2015, pushing the total to 4.5 billion reais ($2.54 billion).

Ford is developing a small sport-utility vehicle there for domestic sales and for export, its first Brazil-engineered model to be sold outside the country.

Capital spending at the automaker is expected to be in the range of $4.5 billion to $5 billion this year, Controller Bob Shanks said in a conference call with investors last week.

Building less-expensive vehicles on the same platforms worldwide saves money that Ford can use to expand output and allows for exports to more markets, Johnson, the Barclays analyst, said in an interview.

“This is where their plans start to pay off,” he said.



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