The Latest Sign of Ford Motor Company's Explosive Expansion in the World's Largest Automotive Market

It's common for Ford to post double-digit sales gains in China each month, but here's another sign that the company's expansion is exploding.

Jun 23, 2014 at 3:31PM

Focusst
Ford's Focus remains a hot option in China. Source: Ford.

Every single month, journalists who cover the automotive market must find a different way to describe Ford's (NYSE:F) breakneck pace of expansion in China. America's second-largest automaker has each month of 2014 posted year-over-year sales gains of 53%, 67%, 28%, 29%, and 32%. Ford also recently released additional information that exemplifies its accelerated expansion in China, and this time it isn't the sales data that is impressive.

One big day
In just one day, June 19, Ford opened 88 dealerships in the world's largest automotive market. That onslaught boosted the number of Ford's outlets in China by roughly 13% and brought its total dealership count in the country to 750.

Ford's single-day bonanza even lured CEO Alan Mulally to China for the opening of the Shanghai Jiuhua West Dealership, according to Automotive News.

Marin Burela, president and CEO of Changan Ford, a joint venture operation in the country, noted that Ford expects to reach 800 dealerships in China by the end of this year. The company's strategy behind choosing the locations is now just as important for investors as the actual numbers.

Smaller is better
Investors likely know by now that Ford was about half a decade late getting into China and has since made up ground on its competitors at an impressive pace. In fact, Ford last year surpassed Toyota and Honda in annual sales. The Blue Oval is also on pace to pass Nissan in roughly one year's time. Within a couple of years it's very likely that Ford will become the third-largest-selling foreign automaker in China, behind Volkswagen and General Motors.

Ford
Ford's sales in China have roughly tripled since 2012. Source: Ford.

Keeping Ford's sales growth at an accelerated pace will take a different strategy going forward. When Ford was new to the region it was easy for it to cherry-pick the fastest-growing markets, and those with a high volume of sales, to jump into. Ford's targets with many of the new dealerships in China are smaller markets the company hopes will deliver future sales explosions.

The bulk of the new store openings were in growing urban areas. According to Automotive News, nearly 75% of the outlets operating by Ford's joint venture, Changan Ford, are in Tier 4 cities or smaller. If these smaller cities come through on expectations for explosive growth in the central and western parts of China, Ford should be able to sustain its incredible double-digit sales gains each month for the foreseeable future.

Possible downside?
There really isn't much downside to the accelerated pace at which Ford is expanding in China. However, as consumer experience and service quality remain critical factors for sustained success, especially as Ford is creating many first impressions in the country, it will be key that Ford's accelerated expansion isn't unleashing a slew of under-trained sales staff who disappoint potential consumers. To be clear, there's no evidence whatsoever that this is occurring, and Ford says it is more than ready to handle the logistics that go into operating these new dealerships.

Foolish takeaway
Ultimately, this one-day blitz of store openings is the latest indication that things are going very well for the Blue Oval in the world's largest automotive market. This will be a key development for Ford as it pins its hopes for a strong second pillar of revenue and profit to help the company become less dependent on sales in North America.

Look for Ford's Asia-Pacific region, which is mainly driven by China, to represent roughly 40% of company revenue by 2020, up from today's 8%. Shortly after, when profit margins rise and capital expenditure declines, expect it to be an even bigger win for the company and its investors -- as long as things stay on this path. 

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Daniel Miller owns shares of Ford. The Motley Fool recommends Ford. 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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