Ford Building Subcompact Car In Brazil

Subcompact sedan one of the future products seen as essential to the struggling auto maker's turnaround hopes.

DETROIT (Dow Jones/AP) - Ford Motor Co. will build its forthcoming subcompact sedan for the North American market in Brazil, in what is considered by some to be a risky attempt to generate profits in that segment of the U.S. market.

Ford has chosen its Sao Bernardo Assembly plant in the state of Sao Paulo as the source for the critical small car, according to officials at Ford and two automotive consulting firms, Global Insight and CSM Worldwide, briefed on the issue. The vehicle is set to launch in the 2009 to 2010 timeframe, said the officials who requested anonymity because Ford hasn't publicly disclosed the plan.

The subcompact sedan to be built in Brazil is one of the future products seen as essential to the struggling auto maker's turnaround hopes. The Dearborn, Mich., auto maker's decision to import from Brazil follows moves by its domestic competitors to build similarly sized cars outside the United States and import them to the United States.

Ballooning labor costs are pressuring U.S. auto makers to invest in manufacturing sites outside of North America for several categories of vehicles that will be sold in the United States. Big Three executives are expected to reference their growing importing activities as a negotiating tactic during labor contract talks slated to begin in July, people at each of the auto makers said. Auto makers will say they will continue to import more and more cars to the United States if they are unable to cut U.S. labor costs.

But Ford's strategy to be the only domestic auto maker exporting light-vehicles to the United States could be laden with risks.

Global Insight analyst Pascual Francisco said Ford is ''making a mistake'' by choosing Brazil for multiple reasons. He insists vehicle quality in Brazil remains a question mark, currency exchange with the United States is unfavorable for U.S. auto makers, and the heavily industrialized Sao Paulo region is largely unionized and the most expensive production location in Brazil.

The Brazil production decision calls into question Ford's plans for Mexico after reports surfaced a year ago saying the auto maker is planning to invest as much as $9.2 billion in operations there.

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