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A Good Story for Ford in China

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One good story for Ford (NYSE: 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 (NYSE: TM  ) and Honda (NYSE: 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 (NYSE: 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.

Ford isn't the only American company investing heavily for growth in emerging markets. Quite a few American companies are finding strong growth thanks to savvy execution in fast-growing new markets like China and Russia. 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 -- so grab your copy now.

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.

Read/Post Comments (1) | Recommend This Article (3)

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  • Report this Comment On May 13, 2012, at 4:32 PM, mistacy wrote:

    Ford has started to be bashed on by analysts & other stock watchers for the poor Asian results so far. The point they are all missing is that Ford has just begun its Asian invasion. Look at it, The Focus just started to be sold this April, only last month. I think Ford battle plan of action is taking really good shape. Results by its 2015 target should be more than satisfactory. The Market has really turned its back to Ford stock for some time. When the Market is going to wake up & realize that Ford is again one major player, the only one I see able to compete with the Korean newly super challengers at this point, Ford stock should finally start to get where it deserves. At this point it is a little premature, but when all the financial mess settles up in Europe & that the economy tanking is old news Ford shares could hit the 30s. I am long F. It is not a stock for speculator. Investors get rewarded with a decent to start with dividend.

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