A Good Story for Ford in China
May 11th 2012 6:09PM
Updated May 11th 2012 6:12PM
One good story for Ford (NYS: F) in recent months has been the strong U.S. sales of its excellent compact car, the Focus.
The Focus got off to something of a slow start last year, but sales have picked up in a big way as more and more buyers discover how well the Detroit-built compact compares with the longtime segment leaders from Toyota (NYS: TM) and Honda (NYS: HMC) . It's Ford's best-ever compact car, and it has become a hit.
It's a great story for the Blue Oval. And now, it's a story the company hopes to repeat -- in China.
A strong debut for Ford in China
Ford has had mixed results in China lately, but that hasn't stopped the company from making a massive investment in new factories in the country -- nearly $5 billion to date, as Ford gears up to launch 15 new models in China by mid-decade.
The first of those 15, the Focus, went on sale in mid-April. Sales were strong from the start, with nearly 10,000 sold in its first 10 days on the market, an encouraging beginning. The initial success of the Focus helped lift Ford to a 24% year-over-year gain in wholesale deliveries, the company said in a statement this week.
Ford's efforts in China are split between two joint ventures: Changan Ford Mazda Automotive, which offers familiar Ford-brand cars and SUVs, including the Focus; and Jiangling Motors, which builds and sells a version of the Ford Transit van to commercial customers. Changan Ford accounts for about three-fifths of Ford's total sales in China at the moment, a share that is expected to grow significantly over the next few years.
Searching for growth in a subdued market
Although China has become the world's largest auto market, its current growth rate is nothing like the torrid pace seen even a few years ago. Ford officials are predicting just 5% annual growth for the overall market for the rest of the decade -- but the company clearly thinks that it can win an outsized share of that growth.
How? By tapping its strong global portfolio to expand its range of offerings. Catering to an emerging Chinese taste for SUVs, Ford announced last month that its Explorer and Kuga -- a twin to the all-new Escape set to make its debut in the U.S. shortly -- would be arriving in China later this year. They will be joined by the EcoSport, a new mini-SUV based on the Fiesta that will also be sold in Latin America and elsewhere.
The Explorer has been a huge hit for Ford in the U.S. since its debut early last year, and early signs suggest that the Escape may be poised for similar success. Both should compete well against rival offerings from the likes of General Motors (NYS: GM) and Toyota in China, just as they do here.
A new audience for one of the oldest auto brands
The new models are part of a larger Ford effort to raise awareness of its brand in China. Ford's strategy of building premium-feeling products -- by offering interior trim and features generally associated with luxury models -- has paid off in the U.S. and could play right into affluent Chinese consumers' preferences.
It doesn't hurt that Ford is one of the world's oldest car companies, a status that counts for something in China. But Ford is still playing catch-up, with monthly sales totals far behind those of the market leaders, GM and Volkswagen (OTC: VLKAY.PK). Ford only arrived in China recently, and it has a long way to go.
Ford CEO Alan Mulally is betting -- and betting big -- that the company's strong product line can help double its sales in China in the next few years. Will it work? It's probably too soon to tell. But if the Focus's strong debut is any evidence, it just might.
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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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