Ford Motor Co.(NYSE:F) doubled down on China during 2012 when it placed a $5 billion bet that a fifth car factory, as well as a slew of new vehicles and engines, would help build that nation into a second pillar of revenue and profit. At first, the results were promising. From 2012 through 2015, shareholders could count on the sales numbers out of China as a pick-me-up. Fast-forward to May 2018, however, and one thing is clear: Ford China sales data is no longer something to look forward to.
Ford's May sales checked in at 61,744 units, which was a 29% plunge from the prior year's result, and added to a 22% full-year decline decline through May. Unfortunately for Ford shareholders, that 29% decline looks even worse when you consider that sales of new light vehicles in China jumped 7.9% year over year in May, and total sales for the year were up 5.1%. The graph below puts in perspective how and when Ford's sales momentum started to sputter -- and remember, cross-town rival General Motors has been crushing it in China.
"As we continue to transform our business, we remain focused on our In China For China strategy," said Peter Fleet, president, Ford Asia Pacific and chairman and CEO, Ford China, in a press release. "We announced new leadership for both the Ford National Distribution Services Division and Lincoln, established a new partnership to explore a smart mobility solution, and offered our customers more competitive pricing following recent tariff reductions. We believe we are taking the right steps to drive the business forward."
The Ford Escort, its best-selling vehicle in China last year, continues to struggle: Its May sales checked in 37% lower, adding to a 23% year-to-date decline. The automaker's second best-selling vehicle last year, the Focus, posted a staggering 50% May decline and a 45% year-to-date decline. The Kuga, which has immense upside in China, where the growing middle class increasingly craves crossovers and SUVs, also disappointed with a 52% sales decline. Changan Automobile, Ford's car and crossover joint venture, posted a 43% sales decline, followed by a 3% decline in Lincoln sales, and a 20% drop in imported Ford brand vehicles. There was hardly a bright spot in last month's data -- and you can see here just how poorly Ford is doing compared to its rivals -- unless you consider it a moral victory that Ford Jiangling Motor Corp., its commercial van and truck joint venture, posted flat year-over-year sales.
What happens next?
China is expected be the world's primary driving force for auto sales growth over the next decade, and likely longer. Volume there is expected to hit 25.6 million units in 2018, compared to roughly 17 million units in the U.S. market. The growth, as well as an increasing demand for more profitable crossovers, SUVs, and luxury vehicles, should turn it into a second strong source of revenues and profits for global automakers over the long-term. Ford hopes to revive its sputtering sales there by launching 50 new vehicles in the country by 2025, led by an all-new Ford Focus. The expanded lineup is expected to boost Ford's revenue by 50% over the same time period.
Turning its Chinese operations into a major profit pillar would help renew investors' faith in Ford as a growth story during an era of plateauing U.S. sales. But in order to make that happen, it must first successfully refresh its vehicle portfolio with models that lure back consumers, after what is shaping up to be an ugly 2018 in the world's largest auto market.