Ford Doubles Down on China
Ford's (NYS: F) much-touted product renaissance has rejuvenated the company's prospects in the United States. With its strongest lineup of cars and trucks ever, Ford is finding surprisingly strong growth in hot segments like compact cars -- segments where the company's offerings had historically been also-rans, at best.
Leveraging its newfound product strength has led Ford to promising successes in emerging markets like Russia and India, where the company is building a strong foundation for future growth. And while its results in China have so far been mixed, that isn't stopping Ford from investing heavily -- and aggressively -- in the world's largest auto market.
Big investments for
This week, Ford announced a $760 million investment in a new plant in Hangzhou that will double the company's production capacity in China to 1.2 million vehicles a year. Coming on top of a $600 million investment in Chongqing announced earlier this month, that brings Ford's total investment in China to nearly $5 billion so far.
That's a tremendous sum, given Ford's so-so sales results in the country, but the Blue Oval thinks it is well positioned for big things in the future. Compared with rivals General Motors (NYS: GM) and Volkswagen (OTC: VLKAY.PK), which invested early and became the leaders of the world's largest auto market, Ford is a latecomer to the China party. And as the once white-hot market has slowed, Ford has actually lost ground in the Middle Kingdom. Sales were down 14% in the first quarter versus the year-ago period.
But Ford is gambling that its strong products will help it make up ground in time. And it's a big-money gamble: The Chongqing manufacturing site is Ford's largest outside its home base in southeast Michigan, and using that site -- and Ford's other China facilities, including the new Hangzhou plant -- to its best advantage will require the Blue Oval to more than double its sales in China by mid-decade.
Ford's managers clearly think they can get it done. And in an ironic twist, just as Ford's compact cars are driving its renewed strength here in the U.S., Ford plans to lean on its SUV lineup to help drive sales growth in China.
Ford's not-so-secret weapons for future growth in China
SUVs have seen a big surge in popularity in China in the past few years, as consumers have had more money to spend and sought to move beyond the small cars that have been the market's mainstay to date. Ford expects the SUV market in China to continue to grow at about 10% annually, even as the overall auto market continues to cool.
And thanks to its global lineup, Ford is better-positioned than most automakers to meet that demand. Ford is expected to introduce several new-to-China SUVs and crossovers at next week's major auto show in Beijing, including the American-mainstay Explorer and the Kuga, known here as the new Escape. These introductions are part of Ford's plan to add 15 new vehicles in China, as the company seeks to stake out a leadership position in the SUV market.
Ford expects 70% of its overall global growth to come from its "Asia Pacific Africa" region by mid-decade, and its efforts in China will be the key driver of that growth. While its late arrival and relatively small market share will hinder those efforts somewhat, Ford is betting that its strong products -- and its status as one of the world's oldest car companies, which counts for something in China -- will help it win out.
Given how well Ford's latest products have done elsewhere in the world, it seems like a pretty good bet.
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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 serviceshave recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.