How Ford Is Catching Toyota in Chinahttp://www.fool.com/investing/general/2013/10/10/how-ford-is-catching-toyota-in-china.aspx John Rosevear
October 10, 2013
Could Ford (NYSE: F) be on the verge of passing giant Toyota (NYSE: TM) in China?
It's looking more and more likely. That's quite a surprise, given that Ford was far behind just a couple of years ago.
But a massive surge by Ford -- and troubles for Toyota and its Japanese counterparts -- have put the Blue Oval within striking range of a major sales upset.
Huge sales gains continue for Ford in China
Ford said on Wednesday that its sales in China were up a whopping 61% in September, as the new Mondeo -- China's version of the Ford Fusion -- completed its first full month on the market.
For the first nine months of 2013, Ford's sales in China were up 51%, thanks to a slew of new models and continued strong results for the popular Focus.
Those strong growth numbers have put a tantalizing goal in sight: By the end of the year, Ford could overtake rivals Honda (NYSE: HMC) and Toyota in China's sales rankings.
A surge that could put Toyota in Ford's rearview mirror
According to a recent Reuters report, Toyota says that it is on track to sell about 900,000 vehicles in China this year, while Honda expects to sell about 750,000. At its current rate of growth, Ford should break 900,000 without too much trouble -- and could hit a million, Ford Asia Pacific chief David Schoch told reporters on Wednesday.
Of the Japanese automakers, only Nissan (NASDAQOTH: NSANY) expects to sell more -- it's aiming for 1.25 million sales in China in 2013.
If Ford does hit that million-sales milestone, its market share in China will have roughly doubled, from about 2.5% at the beginning of 2012 to close to 5% by the end of this year.
It's great progress for an effort announced by Ford a couple of years ago, called "15 by '15". That's shorthand for 15 new or refreshed models for the Chinese market by 2015, which Ford hoped would drive its market share in China to 6%. But Ford's actual gains in China may be outpacing even its own aggressive goals.
The first of those 15 new models was the current Focus, launched last year. It quickly became a best-seller, and has since been followed by the Escape (called the Kuga in China), the refreshed Fiesta, a small SUV called the EcoSport, and now the Mondeo -- as well as the imported-from-America Explorer.
Many Chinese consumers say they want a vehicle that is comfortable, well-made, and well-equipped with high-tech features, and one that is stylish but not ostentatious. Ford's recent global product formula, which puts high-tech premium features into well-designed mainstream models, is playing very well with those customers.
Not just lots of sales, but lots of profitable ones
General Motors (NYSE: GM) makes up about half of its market-leading China sales volumes with inexpensive (and low-profit) commercial vans sold under the Wuling brand name. The Wulings keep GM's overall market share high, but profits are relatively modest.
Meanwhile, Volkswagen (NASDAQOTH: VLKAY) has closed the gap with GM thanks to a huge variety of models covering the entire market spectrum, ranging from popular low-price models based on old Volkswagen designs from elsewhere in the world to high-end Audis that out-sell offerings from German archrival BMW (NASDAQOTH: BAMXF).
Ford doesn't go nearly as far downmarket. It does continue to sell its last-generation Focus (called "Classic Focus") alongside the new one, but the Classic Focus is positioned in the middle of the compact-car market, while the New Focus (as it's called) is positioned at the high end.
Ford has avoided reaching for volume at the lower-profit ends of market segments, instead focusing on its own strengths -- well-equipped cars and SUVs offered at the upper end of pricing within mainstream market segments.
Meanwhile, at the higher end of the scale, Ford has said that it will bring its premium Lincoln brand to China late next year. Lincoln is unlikely to directly challenge BMW, which has become an established luxury player in China, but it could steal sales from premium Japane