Ford Motor Company (NYSE:F) said that its sales in China fell 1% in August from a year ago, as its mainstream models continued to struggle against newer competition from both domestic Chinese and global automakers.
A quick note: How Ford is organized in China
Ford's operation in China can be confusing to those who haven't followed it closely. In a nutshell, the vehicles Ford sells in China fall into four categories:
- Vehicles built by Ford's joint venture with Chinese automaker Changan Automobile (called Changan Ford or CAF). These are Ford-brand cars and SUVs, most (but not all) of which would be familiar to Americans.
- Vehicles built by a joint venture called JMC, owned by Ford and Chinese truck maker Jiangling Motors. JMC builds the Ford Transit van line, the Ford Everest SUV, and a line of light trucks sold under the Yusheng and JMC brand names.
- Ford-brand vehicles imported into China from elsewhere (including the United States). These include the Mustang, the Explorer, the F-150 Raptor, and the ST and RS performance versions of the Focus.
- Lincoln-brand vehicles, all of which are currently imported into China from North America.
What's hurting Ford: Sales of mainstream models are slowing
Ford has had an up and down year in China. Through August, its sales in China are down 6%. But the big drop has come with the products produced by CAF, which are down 16% year to date as a group.
Those products include many of Ford's familiar passenger vehicles: the Focus, Fusion (called the Mondeo in China), EcoSport, Escape (called the Kuga in China), and Edge. In addition, there are two Fords in the CAF lineup that are unique to China: the Escort, an affordable compact sedan based on the last-generation Focus; and the Taurus, a new full-size sedan (different from the U.S.-market Taurus) that is mechanically related to the Fusion and the new Lincoln Continental. Sales of the group fell 8% last month.
The Focus offers a good example of what has been happening. Small cars are big sellers in China, and the current Focus was very popular when it was first launched in China as a premium alternative to mass-market models. But more recently, its sales have faded: Sales fell 19% to 13,393 in August. Year to date, Focus sales are down 20%.
What's going on? Simply put, China's market moves very quickly, and the Focus is now old news. To Chinese eyes, it's starting to look dated next to new models like Honda's (NYSE:HMC) recently revamped Civic. Honda sold 14,315 Civics in China in August, up 67% from a year ago -- outselling the Focus.
That's happening across the line. Note that while Ford struggled again in August, rival General Motors' (NYSE:GM) sales in China rose 12% on strong sales of several recently launched crossover SUVs.
Ford is doing better with commercial vehicles and Lincolns
Sales of Ford's Transit vans have flagged this year, but JMC as a whole is doing quite well, thanks in part to an affordable pickup model marketed under the JMC brand. The venture's sales were up 10% last month; they're up 16% to date.
Lincoln is also doing well: Ford sold 5,240 Lincolns in China last month, more than double its year-ago total. Sales of the midsize MKZ sedan, compact MKC crossover, and midsize MKX crossover were all up strongly from a year ago, while the new Navigator SUV is proving popular. And in a surprise, Lincoln sold more Continentals in China in August (996) than it did in the U.S. (816).
Ford sold 1,586 imported Ford-brand vehicles in China in August. That's a small number, but it was up 25% from a year ago -- and these are high-profit products. Of note: Sales of the big Ford Explorer crossover SUV rose 4%, to 1,098.
The upshot: Ford has work to do, here
It's not clear what Ford can do to boost its sales in China in the near term, aside from cutting prices (at the expense of profits -- and its pricing power down the road). Ford's equity income from CAF and JMC was down 34% last quarter, and it may be down again when Ford reports third-quarter results next month.
Fresh products are what Ford most needs to get back on a growth track in China. Those will come, but -- aside from a revamped EcoBoost, set to launch shortly -- it may take a while. Until they arrive, sales growth may be scarce for Ford in China.