Mazda and Ford have announced they will expand their joint production facilities in Thailand to build B-segment (Light) cars for the Asia Pacific region. The announcement will see Mazda2 and the next generation Ford Fiesta built at the companies' AutoAlliance Thailand (AAT) facilities south east of Bangkok.

Though still to be unveiled, the new generation Fiesta (more here) shares its platform with the new Mazda 2. Thus both companies will benefit from the production synergies of the two cars being manufactured at one facility. Economies of scale, just-in-time logistics and parts rationalisation play an important role in justifying the joint venture.

The cost of labour is another key factor in establishing the new plant. Thailand is acknowledged as a low-cost provider of high quality finished products to the car industry and cars as diverse as Honda Accord, Toyota HiLux and Holden Zafira have been sourced from the South-East Asian country in the past.

Thailand is also one of just two countries in the world -- the other being the USA -- that has a free trade agreement (FTA) with Australia. And it's this factor that is most important for Ford Australia going forward.

The announcement means Ford will be able to import its light car segment entry from a country with labour costs and exchange rates that compare favourably with Japan and South Korea. On top of that, there are no tariffs to be paid on a CBU (completely built up) car imported from Thailand, due to the FTA.

With Ford moving to local production for the Focus in 2010, Thai production means the majority of Ford's small car range will be duty-free. This will translate to either a price advantage at dealerships or for a substantially enhanced per-unit profit to Ford -- probably a mix of both.

The Thai-built Fiestas will come on stream from early 2009 -- perhaps as much as 18 months before Ford's local small car production comes onstream.

Ford Australia boss, Tom Gorman indicated the investment in AAT was "significant" and that the announcement was a key component of Ford Australia's future model plans.

"If you're thinking about our strategy, we're starting to show you piece-by-piece," Gorman explained.

"The Light and Small Car strategy is [now] very clear. Light cars will come out of Thailand taking advantage of duty free status -- with the free trade agreement putting us in a more cost competitive position and making more volume available. Second piece is Focus -- small cars are going to come out of here [Broadmeadows] for us and we'll have an export portfolio as well."

Gorman said combined with the local Focus line, Thai production would address supply constraint issues that he claims affects Ford's small car sales volumes Down Under. He said Ford had been supply-constrained on Fiesta "forever".

He was at pains to point out, however, that the design and "brand DNA" of the new Fiesta would remain European.

The AutoAlliance expansion will cost Ford and Mazda around US$500 million and will be constructed on the same site as the existing light truck plant. The two new production lines are expected to yield 275,000 units per year, including CKD (Completely Knocked Down) kits.

AutoAlliance Thailand was originally established to build the BT-50 and Ranger models for global consumption.

To comment on this article click here