Ford Struggles as the Chinese Market Softens

It's the best of times, it's the worst of times: Auto sales in China were down 4.4% in the first two months of 2012, considerably worse than the 3% that (pessimistic) analysts had predicted. That's the biggest drop in seven years, according to the China Association of Auto Manufacturers.

Many have pinned their hopes to the prospect of high growth in Chinese auto sales, but at least for the near term, that prospect is dimming. China's economic growth is slowing, and that plus rising gas prices have put a chill on what was -- until recently -- the world's hottest auto market.

But not everyone is faring badly in China. In fact, for General Motors (NYSE: GM  ) , 2012 is shaping up to be a pretty decent year -- even as Ford (NYSE: F  ) seems to be struggling to expand.

Why "good" news might not be
GM and Ford both reported big year-over-year sales increases in China in February, but those numbers need some context. Much of China grinds to a halt for several days every year around the New Year's celebrations. Those celebrations fell in January this year, but they were in February in 2011 -- which means that comparing this year's February sales numbers to last year's is a bit deceptive, because the country was effectively on holiday for several days of the year-ago period.

To see what's really going on, one needs to look at January and February together, and look at year-over-year sales for that period. Viewed that way, Ford's having a rough time: Sales for the period were down 16% from year-ago figures.

That has to be a disappointment for the Blue Oval, which has been aggressively working toward big growth in the Middle Kingdom. Ford opened its fourth Chinese assembly plant last month and now has the capacity to build 600,000 vehicles a year in China. The new factory will build the Focus -- or the "New Focus," as it will be called in China, as it will be sold alongside the lower-priced "Classic Focus," the last-generation model. The (New) Focus is the first of 15 new vehicles Ford plans to roll out in China by mid-decade. Ford expects to open three more new plants in China by the end of next year to support its ramp-up.

But while Ford is struggling a bit, General Motors is still rolling along.

Strong results continue for the General
GM posted a 7.7% year-over-year increase in sales for the first two months of 2012, far outpacing the overall market and most of its rivals in the country. In fact, GM said that its February sales total was its third-highest monthly figure in China ever -- particularly impressive given the weakness of the overall market.

Sales of GM's bread-and-butter China-market models have continued to be strong. GM sold 20,662 copies of the Chevy Cruze in China in February, slightly more than it sold in a strong February in the U.S. Sales of the Buick Excelle -- month after month, one of China's best-sellers -- continued strong, and the Chevy New Sail, an entry-level car developed specifically for the Chinese market, posted solid results.

But GM's other "global" brand, Cadillac, continued to be all but invisible in the Middle Kingdom. The German luxury brands continue to find strong success in China, with Volkswagen's (OTC: VLKAY) Audi selling over 30,000 vehicles in China in February alone. But Cadillac is nearly invisible, with sales of just over 2,000 on the month.

The problem is product, and to some extent, design: The sharp-edged "Art and Science" design theme used on current Cadillacs doesn't play as well in China as the Germans' curvier designs, say some analysts. And Cadillac lacks a proper no-excuses large sedan that can compete head-on with the big Audis and Mercedes favored by wealthy Chinese and senior government officials, though one is rumored to be under development.

But still, GM has to be heartened by its continued growth in China as the overall market stalls. And despite disappointing results as the year opens, Ford has to be optimistic that its raft of new products will help it find new growth in coming months as well.

GM and Ford aren't the only big American companies looking to China for growth. Several great American companies are finding strong growth thanks to savvy execution in the world's fastest-growing new markets. Motley Fool analysts have identified three big-name companies that are particularly well-positioned to profit -- and you can learn more right now with our new free report: "3 American Companies Set to Dominate the World." It's completely free for Fool readers, but only for a limited time -- click here to grab your copy now.

Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as creating a synthetic long position in 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.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1807796, ~/Articles/ArticleHandler.aspx, 4/18/2014 5:11:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement