The first time David Schoch had an assignment in China - as Ford Motor's CFO there - was from 2000-04, when the Chinese auto market produced fewer than 2 million cars.
Now, newly appointed as group VP and president for Ford's Asia-Pacific region, Schoch is overseeing the Ford brand in a country that is the world's largest automotive market, with sales just short of 20 million vehicles in 2012.
While growth is slowing in China, it is still on a pace to expand far greater than any other economy. Ford still expects continued growth.
"You have to keep it in perspective." Schoch said. "People are saying China has slowed down, and it has. But when you compare the [gross domestic product] growth of several years ago when it was at a torrid pace of 10 and11%, that's not sustainable. Now it's at 7.5%, and what other country in the world wouldn't give anything to have a 7.5% growth?"
Ford is laying out its future plans for China based on a steady growth of 5% per year during the next decade. It currently has 2.8% of the sales market in the Asia-Pacific region, a level that Schoch says is "much lower" than Ford would like.
"We have some pretty aggressive plans in global products and we think we'll get a big bounce next year," he said.
Ford is also launching its Lincoln brand in China this year, looking to tap into the growing demand for luxury vehicles from consumers in their 30s looking to move up into premium cars.
During a Jan. 15 interview at the North American International Auto Show in Detroit, Schoch talked about the pressures that growth in China has had for the auto industry and demands on the supply base in China.
What kind of issues have you found in terms of developing suppliers in China?
Schoch: Like the rest of the industry, the supply base is still maturing. It's a fairly immature industry [considering the growth since 2000], but growing very quickly with capabilities and technology. But they're not there yet with the quality.
The western [automakers] have brought in a lot of their western suppliers to help with development, but that's going to take time. However, I think that over the next decade you're going to see the ability and capabilities of the Chinese supply base improve dramatically.
A lot of midsized suppliers are still looking at how they can expand to China to meet the global vehicle platform requirements and whether they should look at joint venture partnerships. What have you seen from those companies?
For many parts of the supply base, it's difficult to go into China alone. They can go it alone, of course, but it is difficult. For Ford, we have to have a partner, because that's the [government] policy, but there are areas where the supply base is developing there, which is creating some opportunities.
We're picking up more Tier 2 and Tier 3 type suppliers [in China] and we're really encouraging our Tier1 suppliers who have come to China to use Tier 2, 3 and 4 suppliers in China when they can.
In many cases, some of the global suppliers have come, and they fly the big flag out front saying they're global, but they're still sourcing most of their component parts back from the US or Europe at some higher cost and that's not really taking advantage of the true China cost.
So you're seeing capabilities improving from solely Chinese companies?
Definitely. They don't want to just be a black box manufacturer, made to print from someone else. They want to add more value to it. They want more engineering and product development skills —that's what they're looking for, and frankly, that's what the government's looking for. They want technology transfer, skill transfer, and to upgrade the China supply base.
How does that emphasis on capabilities within China affect Ford's own production plans?
Certainly, in all the plants we develop throughout the Asia-Pacific region, we hold them to the same standards as plants anywhere around the world. We're not going into China and saying: 'We can cut corners here, we can cut corners there.' We build them to the same standards.
The same is true with our safety standards, and our environmental standards. I'm not going to face the Chinese customer and tell them that you're different, and you can live with different standards.