Please ensure Javascript is enabled for purposes of website accessibility

Ford's Sales in China Jump as Its Strategy Shift Takes Hold

By John Rosevear – Sep 7, 2016 at 1:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After big drops in Ford's market share and second-quarter profits from China, CEO Mark Fields ordered changes. The result: Big sales gains for two months in a row.

The revamped Ford Focus helped the Blue Oval to big sales gains in China in August. Image source: Ford Motor Company.

Ford Motor Company (F 0.36%) said on Wednesday that its sales in China jumped 22% in August on strong sales of SUVs and small sedans. It was the second month in a row of strong year-over-year gains for Ford in China after a so-so second-quarter result that had left some investors concerned. 

Ford's results: New and revamped models drove sales gains

Ford doesn't report its China sales model by model, although it sometimes breaks out results for a few specific models that have done well. Instead, it reports results for the two joint ventures it has with Chinese automakers that manufacture Ford-brand vehicles in China, as well as an overall total number of sales that include those made directly by Ford. Those direct sales include a small number of Ford- and Lincoln-brand vehicles imported into China from Ford's factories in other countries, including the United States.

Ford's joint venture with Chinese automaker Changan Automobile, called Changan Ford or CAF, builds and sells Ford-brand passenger vehicles. Its lineup is based on Ford's global product portfolio. Most of its models would be familiar to Americans, though there are a few variations built specifically for the Chinese market. 

Changan Ford's sales rose 26% from a year ago, to 75,228 vehicles. Ford said that the recently revamped Focus compact (up 92%), the affordable China-only Escort compact (up 49%), and the new Edge crossover SUV (up "more than threefold") led the way for CAF in August. Year to date, CAF's sales are up 13% from the same period last year. 

Ford's other venture, with Chinese truck maker Jiangling Motors, is called Jiangling Motor Corporation (JMC). builds and sells several Ford trucks and commercial vehicles, including the Blue Oval's popular Transit van lineup. Some of its vehicles are exported from China to other countries in Asia.

At least in China, most of JMC's sales are to commercial customers. Those sales have suffered over the last year as China's building boom has stalled. But China's commercial-vehicle market may be looking up: Like rival General Motors' (GM 0.87%) commercial-vehicle joint-venture Wuling, JMC had a good August. JMC's sales were up 16%, to 19,951 vehicles sold. Year to date, JMC's sales are down 3% from a year ago.

Ford's other sales in China include the vehicles it imports. Those include all Lincolns sold in China, the Ford Mustang, and the ST high-performance versions of the Focus and Fiesta. Those sales totaled 1,271 last month.

What it means: Ford's aggressive actions appear to be paying off

Ford's market share had been slipping in the early part of 2016 as the company was caught a bit off-guard by aggressive local competition. Several of the domestic Chinese automakers have recently made big strides in quality, and they've become much more competitive in the affordable market segments, particularly around crossover SUVs. 

Ford had been doing very well with crossovers like its compact Kuga, the Chinese-market version of the Escape, and its smaller Fiesta-based Ecosport. But local competition took a big bite out of Ford's market share: Sales of the Kuga were down 18% in the first half of 2016.

That had a big impact on Ford's regional bottom line. Ford's share of the equity income from CAF and JMC fell 28% in the second quarter, to $296 million. But CEO Mark Fields said during Ford's second-quarter earnings call that Ford's team in China had already begun taking aggressive action to turn things around, reducing costs, and adjusting pricing and product mix to take best advantage of market trends. 

Ford's China-market Kuga is a near-twin of the Escape. Like the Escape, the Kuga is getting an update for 2017. Image source: Ford Motor Company.

Fields also noted that Ford is set to introduce several new or revamped models to China in the second half of the year. As we saw with the refreshed Focus in August, even a lightly revamped model can produce a jump in sales. Ford has a revamped Kuga on the way (similar to the refreshed-for-2017 Escape), which ought to give sales another boost. Fields also said that Ford had revamped the Chinese versions of its small cars to reduce costs and allow them to be sold profitably at more competitive prices. 

The upshot: Ford might be on track for a much-improved third quarter

Ford doesn't release details of its pricing or discounts in its monthly sales reports from China. We'll have to wait until its third-quarter earnings report next month to find out if these sales gains are the result of aggressive discounting moves (above and beyond its cost reductions on models like the Escort). 

But I suspect they aren't. It sounds like the quick action that Ford took earlier in this year to revamp its model mix and lower costs is driving its sales gains right now. If so, its third-quarter profit from China could be much more impressive than what we saw last quarter. That would be comforting news for Ford shareholders. 

John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ford Stock Quote
Ford
F
$14.08 (0.36%) $0.05
General Motors Stock Quote
General Motors
GM
$40.46 (0.87%) $0.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.