Special Coverage

Frankfurt Auto Show

FRANKFURT – Ford Motor Co. signs an agreement with the Romanian government to purchase the Daewoo Automobile Romania S.A. car plant based in Craiova in the southwest region of the country, ending months of negotiation.

Ford of Europe President and CEO John Fleming and Romanian Prime Minister Calin Popescu-Tariceanu at the auto show here today witnessed the signing of the documents that will begin the process of transferring ownership of the facility.

Ford will pay €57 million ($79 million) to the Romanian government for its 72.4% stake in Automobile Craiova S.A. The remaining shares are owned by SIF Oltenia S.A. (22.1%) and other investors (5.5%).

Automobile Craiova owns 49% of the Daewoo Automobile Romania car plant. The remaining 51% is owned by the Daewoo Automobile Romania, itself. However, those shares are non-voting.

Now that it has the majority stake, Ford will concentrate on acquiring full ownership in Automobile Craiova, Fleming says.

“We understand that there are minority shareholders, and of course now we have to work with minority shareholders to come to a successful conclusion,” Fleming says. “We are looking to try to get 100% of all shares (of Automobile Craiova).”

Ford’s purchase of the Craiova facility will be ratified by the Romanian government via a special law that is expected to make its way through parliament in about six weeks, says Lyle Watter, director-business strategy for Ford Europe.

Ford is expected to take control of the operation closer to the end of the year.

Ford has committed to spending €675 million ($938 million) to upgrade and modernize the plant. The auto maker plans to produce up to 300,000 small cars and 300,000 engines per year there, with employment levels increasing from the current 3,900 workers to 7,000 or more.

“While I do not want to be too specific at this stage about the vehicle we shall be building in Craiova, I can confirm we will start with a small car built solely in Craiova, and we expect up to 90% of vehicle production to be exported,” Fleming says.

Production of the Ford cars could get under way before the end of 2008, Fleming says.

As a result of the takeover, Ford plans a significant increase in its purchasing activities in Romania, both to support the local plant and the auto maker’s worldwide operations.

“My objective is to produce the majority of (the upcoming car’s) components there,” Fleming says.

Originally, the Craiova plant started car production in the early 1980s. A joint venture between the then Communist government of Romania and Automobiles Citroen, the company was called Oltcit S.A. and manufactured cars based on the Citroen Visa.

In 1994, Daewoo Motor Co. Ltd. became a shareholder in the plant. The company’s name was changed to Rodae and later to Daewoo Automobile Romania. It is one of the former Daewoo plants not acquired by General Motors Corp. when it formed GM Daewoo Auto & Technology Co. from Daewoo Motor Co. Ltd. assets in South Korea and elsewhere.

Prior to the sale of the plant to Ford, the Romanian government bought back Daewoo’s stake from the Korea Asset Management Corp., the arm that oversees creditor claims as part of Daewoo’s bankruptcy.

Currently, the Romanian plant manufactures first-generation Daewoo Matiz, Cielo and Nubira II cars, as well as engines. The engines also are shipped to other plants, which are making cars in cooperation with GMDAT.

“We will finalize the production of (Daewoo) cars during next year,” Ion Ion, managing director of Daewoo Automobile Craiova, says. “The (Daewoo) engines will continue (to be made) the entire next year at least.”

Ion says about 20,000 cars and more than 200,000 engines will be manufactured this year.

It is possible the Ford-owned plant will continue to make engines for GMDAT and its partners for an extended period. But regardless, the switch from production of Daewoo to Ford engines is expected to occur after the changeover in car output.

“Yes, we would like (to continue supplying engines to GMDAT),” Fleming says. “What I am not sure yet is whether that is exactly what General Motors would like to do as well. That’s a part of discussions we will have with them now.”