Ford Motor Company said that its sales in China fell 30% in February from a year ago, as the Blue Oval continued to struggle in the world's largest new-car market after several years of promising growth.

Rivals are gaining while Ford falls behind

Ford Asia-Pacific chief Peter Fleet, who took over as interim CEO of Ford's China operation after the abrupt departure of Jason Luo in January, attributed the drop to the late timing of Chinese New Year: "We saw sales declining in February caused in part by fewer working days, due to a late Chinese New Year holiday this year."

To be fair, that's probably part of the story, as Fleet said. Chinese New Year is a a lunar holiday that sometimes falls in January and sometimes in February. Because most stores in China, including auto dealers, are closed for several days around the holiday, it tends to put a dent in automakers' monthly sales totals. When it falls in January in one year and February the next, as it did in 2017 and 2018, that can make for confusing year-over-year results.

A Chinese-market Ford Taurus sedan in white.

This big Ford Taurus sedan, a close relative of the Lincoln Continental, was designed specifically for China and launched in 2016. It sold well at first, but Chinese car buyers have since lost interest: Sales were down 53% this year through February. Image source: Ford Motor Company. 

That's why many analysts wait to look at January and February together when assessing an automaker's year-over-year sales performance in China at the beginning of a new year. When we do that, it becomes clear that Ford's problems in China go far beyond the timing of a holiday.

Automaker Year-to-Date Sales Change vs. 2017
General Motors (GM -0.10%) 633,706 12%
Volkswagen (VW brand only)  486,100 10.2%
Nissan  213,172 9.7%
Toyota  203,400 10.8%
Honda  203,239 3.9%
Ford (F -0.84%) 123,473 (23%)
Overall  3,931,700 2.1%

Data sources: The automakers, Automotive News. Year-to-date sales are through Feb. 28. Overall figures are for all light vehicles sold in China during the period and are approximate.

Year to date, Ford's sales in China are down 23%, while nearly all of its global mass-market competitors -- as well as the overall market -- have gained ground. So what's happening here?

Two reasons Ford is fading in China

Michael Dunne is the former head of J.D. Power China and of GM's Indonesia operation. He now runs a Hong Kong-based investment advisory company, Dunne Automotive, and keeps a close eye on developments in the auto industry in China.

I asked him for his thoughts on why Ford's sales have slipped so much in China lately. He said:

Ford has two significant challenges, one short term and one long term. Right now, they're beset by aging product, and new models won't start to arrive until the fourth quarter [of 2018]. Ford is also light on emotional connection to Chinese buyers. It's at risk of losing sales to much-improved Chinese cars and SUVs.

Ford is at a tough point in its product cycle. Most of its core products are a few years old. That's more of a problem in China than in most markets, where things seem to move very quickly because there are so many competitors.

In addition to the latest models from just about all of the global automakers, Chinese car buyers can choose vehicles from a slew of domestic Chinese automakers that (mostly) aren't yet well-known elsewhere, and that have a big incentive to undercut the global brands to build credibility and market share.

The second issue is more nuanced. Some global auto brands have spent years building up dedicated followings in China. GM's Buick brand is one: Buick is a small player in the U.S. these days, but it's consistently GM's best-selling brand in China, because it has earned the loyalty of lots of Chinese customers over time.

Ford has lots of loyal customers in the U.S., Europe, and elsewhere. But as Dunne points out, Ford doesn't have that kind of following in China -- at least, not yet. I suspect that's simply because Ford didn't start ramping up its presence in China until around 2012, by which time GM, VW, and others were well-established players.

Fixing this will take time -- and new leadership

Ford announced an overhaul plan for China in December that includes a bunch of new products, increased local production, and changes to Ford's distribution network. That will give Ford's Chinese dealers fresh products -- eventually. But what about building customer loyalty?

That's a harder problem to solve. I thought that Ford might have found a solution when it hired Jason Luo, a Chinese-speaking American executive, to run its China operation last year. But Luo abruptly left Ford in January for reasons that weren't made clear. Finding a similarly qualified replacement should be the next step in Ford's effort to get back on a growth path in China.