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Ford's New Engine Is All About Winning in China

The Ford Fusion will be known as the Mondeo in China, where it will go on sale later this spring. Photo credit: Ford Motor Company

Ford (NYSE: F  ) announced a new member of its fuel-efficient-engine lineup last week.

It's a new 1.5-liter four-cylinder that's turbocharged, the latest member of Ford's "EcoBoost" family of engines that use advanced turbocharging to give smaller engines more power while saving gas.

It should be a good product, but at first glance it raises a question. Ford already has a similarly sized EcoBoost engine, a 1.6-liter power plant that is featured in vehicles like the Escape SUV and the hot-selling new Fusion sedan, pictured above. The new engine is somewhat more efficient, and a bit more high-tech, but it's pretty similar.

So why did Ford go to the trouble of developing and producing an all-new engine that is so similar to an existing model?

The answer has a lot to do with China, where Ford has big plans to expand – and with a worldwide shortage of engines that may be holding up sales of Ford's hottest new model.

Ford needs more engines for its hot models
One of Ford's biggest challenges in recent times has been meeting customer demand for its latest new products. With many of its plants already working three shifts, Ford has found it hard to increase production – even as its striking new lineup of products are bringing lots of new buyers to its dealers.

One of the "chokepoints" in Ford's production has been that 1.6-liter EcoBoost motor; it's in short supply, thanks to the popularity of both the Escape and the Fusion. With Escape sales picking up overseas (where the model is known as the Kuga), Ford's engine plants were having trouble keeping up with demand.

That constraint may have actually held back sales of the Fusion, a well-executed sedan that is nonetheless cutting into the sales of class leaders like Toyota's (NYSE: TM  ) Camry. That's where the new engine comes in: It's expected to take the place of the 1.6-liter engine in the Fusion, making it easier for Ford to make more of both the Fusion and the Escape.

But why not just make more of the existing 1.6-liter engine instead? That's where China comes in.

Why China had a lot to do with Ford's latest power plant
Ford is in the process of rolling out its hot Fusion in markets around the world. It's set to debut in May in China, where it will be called the Mondeo – and where it will be the first Ford to feature that new 1.5-liter EcoBoost engine.

Why? In China, new cars with engines of 1.5 liters or less get a tax break. It's only about $300, but it's something of a big deal in the super-competitive Chinese car market.

Ford is in the process of a huge ramp-up in China, making up for lost time in a market where rival General Motors (NYSE: GM  ) has a huge presence. The company has spent over $5 billion on factories and engineering centers in the region, and has begun rolling out models from its well-regarded global lineup.

The first of those, the Focus compact, was launched last spring – and has been a big hit in China, which helped the Focus become the world's best-selling car in 2012.

The second, the Kuga (a twin of the Escape SUV), was just launched and is already posting good sales numbers amid huge sales gains for the Ford brand in China.

Ford clearly wants to give its next entry, the Mondeo, every advantage it can to help keep those big sales gains coming. That's why it's getting the new 1.5-liter engine. Meanwhile, the Fusion's sales gains in the U.S. are why the Mondeo's sibling will also be getting the new engine.

The fact that the new engine should improve the Fusion's gas-mileage numbers a bit, giving it an edge in the hyper-competitive sedan wars? Icing on the cake.

Can Ford keep it going?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.

Read/Post Comments (2) | Recommend This Article (2)

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  • Report this Comment On April 15, 2013, at 7:43 PM, AmericanFirst wrote:

    China is already Ford's #2 market, just surpassed the UK. Ford increased their sales 21% in 2012 (626,616 units sold) vs 4% industry sales increase in China, complemented by the #1 selling vehicle in China, the FOCUS. Ford is a little late to the party, but their paying their own way with more great products to come.

  • Report this Comment On April 15, 2013, at 7:55 PM, TMFMarlowe wrote:

    @AmericanFirst: Yep. I am very curious to see how Chinese consumers react to the Mondeo/Fusion. Early buzz in the Chinese auto media that I've seen has been very positive. Could be another hit for them. And sales of the Kuga/Escape were pretty strong in March -- keep an eye on that one, too.

    Thanks for reading.

    John Rosevear

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