Ford insiders appear to have confirmed and provided more details of a project first reported by just-auto in October 2005 – the automaker will build an upcoming new subcompact sedan for the North American market in Brazil, in what a news agency said was considered by some to be a risky attempt to generate profits in that segment of the US market.

In 2005, Ford’s Brazilian unit said officially only that the new vehicle would be made in its São Bernardo do Campo plant, in São Paulo state, for launch in 2008, but company sources told just-auto’s local correspondent that the so-called Project 402 was a low-cost compact car intended to be Ford’s new entry-level model.

The car would be designed and developed in Brazil and would also be exported to other Latin America countries, they said at the time.

On Thursday The Associated Press (AP), citing company officials and automotive consulting firms Global Insight and CSM Worldwide briefed on the issue, said Ford had subsequently chosen Sao Bernardo as the source for a critical small car for the US.

The vehicle is set for launch in a 2009 to 2010 timeframe, the officials, who requested anonymity because Ford hasn’t publicly disclosed the plan, told the news agency.

AP noted that Ford Europe, in cooperation with Mazda, is currently leading development of a new subcompact car that will be sold in several markets around the world, including China and the United States.

Concept versions of the small car will be unveiled later this year at motor shows in Frankfurt and in China, followed by a concept version to be shown in Detroit in January, the news agency added.

Ford do Brasil’s current entry-level model is a line of cars including the current-model Fiesta sedan, designed in-house, and based on the platform and running gear of the outgoing European-designed hatchback, also currently built and sold in Brazil, with detail changes compared to the European version. The sedan version is more popular as South American buyers prefer the conventional ‘three-box’ body style.

According to the Associated Press, the Brazil-built subcompact sedan is one of the future products seen as essential to the struggling automaker’s turnaround hopes.

As the news agency noted, Ford is one of the only major automakers not selling a subcompact car in the United States where the segment is growing at about 90% as high petrol prices continue to pressure consumers and new subcompacts lure new buyers into what had previously been a dying segment.

AP said Ford’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: The General Motors subcompact Chevrolet Aveo is assembled in South Korea and DaimlerChrysler’s Chrysler Group has a deal with Chinese automaker Chery to build similarly sized cars in China. Foreign-owned rivals Toyota (Yaris and Scion xD) and Honda (Fit [Jazz]) ship their contenders in from Japan.

The news agency noted that soaring labour costs are pressuring US automakers 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 labour contract talks slated to begin in July, people at each of the auto makers told the Associated Press.

Automakers will say they will continue to import more and more cars to the United States if they are unable to cut US labour costs, the report said.

Ford spokesman Said Deep declined to comment to AP on the company’s future plans related to the production of subcompact cars for the US market.

The news agency noted that Ford’s decision to pick Brazil could give a boost to the country’s automotive industry, which is pursuing growth through both a strengthening of the home market and new export opportunities. Several automakers have announced new investments and plans to hire more people in the country.

But Ford’s strategy to be the only domestic automaker exporting light-vehicles to the United States could be laden with risks, the report noted.

Global Insight analyst Pascual Francisco told AP Ford is “making a mistake” by choosing Brazil for three reasons. He insists vehicle quality in Brazil remains a question mark, currency exchange with the United States is unfavourable for US auto makers [the high real vs the dollar is also hurting Brazilian exports even within the South American region], and the heavily industrialised Sao Paulo region is largely unionised and the most expensive production location in Brazil.

Francisco told the news agency Volkswagen imported Brazilian-made Golf hatchbacks into the United States until 2005, but stopped because of quality problems.

More recently VW Brazil exports of the newer Fox hatchback and Polo sedan lines to Europe have been hit by the high real, with volumes failing to meet original forecasts due to the high cost of the cars. A year ago, VW said it would build the next-generation Fox in Europe due to the currency problems with the current cars.

“I highly doubt they are going to be profitable,” Francisco told AP of Ford’s venture. He reportedly claimed he tried to dissuade Ford from choosing Brazil, but they declined to take his advice.

Associated Press added that Ford executives were considering building an entirely new plant in Mexico for the product, but decided against that plan because it has existing capacity in Brazil.

CSM Worldwide’s Paulo Cardamone, who heads the automotive consulting firm’s South America practice, told the news agency the move to not build in Mexico could save Ford hundreds of millions in critical capital because it will be updating an existing facility rather than building an entirely new site.

AP also noted that the Brazilian production decision calls into question Ford’s plans for Mexico after reports surfaced a year ago saying the auto maker was planning to invest as much as $US9.2bn in operations there.

The automaker has already said it will revitalise three manufacturing plants in Mexico in coming years, but it remains unclear if the company will build a new car assembly plant in the country, the Associated Press added.