Can Ford Beat GM in China?
Apr 17th 2013 7:00AM
Updated Apr 17th 2013 8:20AM
There's no doubt that Ford has had a lot of success in China lately.
The latest Ford Focus, introduced in China last spring, has been a huge hit - big enough to make the Focus the world's best-selling car in 2012, according to analysts at R.L. Polk.
But the Focus was just the first of a wave of new Fords set to come to China over the next few years. The Kuga SUV, a twin to the Escape sold here, arrived in February - and sales have already been strong.
How strong? This strong: Ford's sales in China are up 54% so far this year. In just a few short years, Ford has gone from near-invisibility to outselling Toyota in China.
But can Ford's Chinese operation catch up to longtime nemesis General Motors , which has had a huge head start?
GM is already one of China's giants
It's a daunting proposition. In terms of total vehicle sales, GM is the China market leader, with archrival Volkswagen close behind. GM had a commanding 15.6% share of the Chinese market last year, outselling Ford by more than six to one. VW was second with 14.5%.
But many of those sales aren't "passenger vehicles", they're small commercial vans. GM has a stake in a joint venture that makes inexpensive little commercial vans sold under the Wuling brand name. It's a minority position, and it doesn't make a ton of money for the General, but it comes with something GM values very highly - the right to count all of Wuling's sales as GM's.
But if you factor out the Wulings, it's VW that looks like the top dog. According to LMC Automotive figures cited by Reuters, VW had 19.5% of China's passenger vehicle market last year, to GM's 10%.
But no matter how you slice it, catching up to GM will be a daunting task for Ford. The Blue Oval had a 3% market share in China in 2012, about the size of Subaru's presence here in the U.S. And while Ford has already gained ground - the company had a 3.6% share in the first quarter of 2013 - it clearly has a long way to go to catch up to GM.
Ford is investing big for major growth
That said, Ford has geared up to expand in a big way - but not in pursuit of GM, necessarily. Instead, the Blue Oval is in pursuit of profit growth. Ford has been investing big in new factories, new engineering centers, and infrastructure in China and other parts of Asia.
Despite that big investment - almost $5 billion - Ford's Asian operation, the bulk of which is China, has been close to breaking even in recent quarters. That's a point that Ford CEO Alan Mulally often highlights: If we're breaking even while spending all that money now, he often says, think about how we'll be doing once those factories are completed.
It's also worth thinking about the fact that Ford's sales are likely to grow considerably. Ford Asia chief Dave Schoch said on Monday that Ford expects to have 6% of China's auto market by 2016. That will come as Ford continues its huge new product push, dubbed "15-by-'15", for the number of new models the company expects to introduce in China by 2015.
Success has already begun to come Ford's way
The first of those 15 was the new Focus, introduced in China last spring. It has been followed by the Escape SUV, which is called the Kuga in China, and will soon be joined by more SUVs - and by Ford's hot new Fusion, which will be sold under the Mondeo name.
Many more models are on the way - and many of those will be built in China. That allows Ford to avoid China's steep tax on imported vehicles, though at a cost - profits will have to be split with Ford's Chinese joint-venture partners, as required by Chinese law. Still, the increase in sales should make that trade-off more than worthwhile.
Ford says that China is on the verge of becoming its second-largest market after the U.S., eclipsing the company's longtime stronghold in Europe. By 2020, it's possible that Ford's sales in China could be even greater than its sales here at home, the company says.
That kind of growth will drive a big jump in profits for Ford. And that will be a great thing for Ford's stock, whether the company is beating GM in China or not.
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The article Can Ford Beat GM in China? originally appeared on Fool.com.Motley Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear.The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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