One thing is certain: China will become incredibly important for global automakers to thrive in the coming decades. A combination of a booming middle class that will become wealthy enough to afford higher-priced vehicles and a rising number of vehicles per capita will provide ample growth. In fact, China's automotive market is expected to drive global vehicle sales growth in the years ahead. But if Ford Motor Company (NYSE:F) wants to gain some ground on its rival General Motors (NYSE:GM), which is killing it in the region, it'll have to steal from the latter's playbook.
Ford's China sales results have been lackluster not only for the recent month of October but year to date as well. Total Ford sales were down 5% in the region last month, and are down 5% year to date for a total of 938,570 units. Ford has especially struggled with its passenger car lineup in China lately, as demand has shifted to SUVs and crossovers. But when you compare Ford's sales to General Motors' 2.2% year-to-date gain to more than 3.1 million units, you can quickly gauge the vast disparity between the two crosstown rivals. (Though, admittedly, GM entered China well before Ford got its foot in the door.)
While Ford's October sales in China were disappointing, the results had some bright spots. Kuga (Escape) grew sales 11% year over year. Its Everest SUV also continued to thrive, with sales increasing 38% last month. Even its Lincoln brand, which has recorded an 85% year-to-date sales explosion, had its SUV trio -- the MKC, MKX, and Navigator -- record gains of 3%, 12%, and 56%, respectively. But what does Ford need to do to really gain ground on GM in China?
Steal the playbook
Sure, the future of China's automotive market will become more lucrative as sales of larger SUVs and luxury vehicles become more common, but right now GM's success is built on its ridiculously popular lineup of entry-level SUVs. GM and its joint-venture partner SAIC Motor Corp. developed its entry-level brand Baojun in 2009, and it's tapped into surging demand for more affordable SUVs.
For context, Baojun was GM's second-best-selling brand in the region last month, with 104,755 units sold. That was second only to Buick's 107,297 sales, and well ahead of Wuling and Chevrolet at 92,588 units and just over 61,000 units, respectively. But what was most impressive is the rate at which Baojun has nearly caught up with Buick. In fact, Buick's year-to-date sales have declined 2.3%, down to 943,385 units, while Baojun has recorded an explosive 45.3% gain to 744,962 units.
It's true that Baojun generates weaker profit margins than GM's other brands in China, but investors have to consider that entry-level products can often benefit a long-term strategy. Many of these entry-level consumers in China could be first-time car buyers, and if GM can keep them within the company umbrella as they step up to more lucrative brands and products, it'll be a massive long-term success for the automaker's market share, revenue, and bottom-line profit.
It's not all doom and gloom for Ford in China. In fact, the folks at the Blue Oval have done a lot right, including expanding Lincoln and building its brand image, as well as inking a deal to produce electric vehicles with China's Anhui Zotye Automobile Co. However, if it wants to gain ground on General Motors, it needs to steal from its rival's playbook and develop an entry-level SUV brand or products. That's easier said than done, but seems like the next logical step for Ford and its investors.