Will Ford's Big Bet on China Pay Off?
Ford (NYS: F) is pushing into overdrive in an effort to reach its global sales goal of 8 million cars by the end of the decade . The company is pumping billions into expansion plans as it tries to catch up to rival General Motors (NYS: GM) in China. Yesterday, Ford said it would invest $760 million in China as part of a strategy to double its production volume in the region by 2015. As the world's largest auto market, China is where all the major carmakers want to be.
Speeding to market
However, where there is opportunity there is also competition -- and Ford is late to the party. The company's recent announcement to build a new factory in eastern China will increase Ford's capacity in the country by 250,000 vehicles a year. While this is a dramatic increase in production, it still may not be enough to match GM's head start in the region.
GM is the No. 1 foreign automaker in China in terms of sales, followed by Volkswagen, with Hyundai Motor a distant third. Meanwhile, Ford claims just 3% of the Chinese auto market. To put this in perspective: Ford sold a total of 320,658 vehicles in the region last year, while GM's annual sales in China clocked in at 2.55 million.
Don't expect Ford to catch up to GM anytime soon. Ford's expansion efforts are part of its global growth strategy, which aims to gradually increase its presence and brand recognition in the fastest-growing markets in the world. The $760 million the company will spend to build a new plant in Hangzhou will boost Ford's production in China to 1.2 million vehicles a year. These investments in the Asia-Pacific region are critical if Ford wants to remain competitive down the road.
Highway to profits
Perhaps the proverbial "better late than never" applies here. Industry sales in China hit 18.5 million last year, and Ford expects that number to accelerate to more than 30 million vehicles by 2020. With this level of growth up for grabs, Ford should be able to increase global sales even if it doesn't manage to catch up to GM in China.
I like that Ford is investing in its future, despite the company's late entry to the Chinese market. While expansion plans will likely crimp Ford's near-term profits, I expect its growth initiatives to pay off in the long run. Both Ford and GM have embarked on incredible turnarounds over the past few years, and even more interesting developments are yet to come. Add these companies to your Watchlist as they race toward world domination.
At the time this article was published Fool contributor Tamara Rutter does not own shares of any companies mentioned in this column. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insights and investing ideas. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.