Ford Motor Company (NYSE:F) announced that it has revamped its Asian operations, making its troubled China business a stand-alone unit and hiring a veteran Chinese auto executive to be its new CEO.
This is good news for Ford shareholders. Here's why.
What Ford said: A new leader for its China business
Ford said that Anning Chen, a former Ford executive who most recently served as CEO of Chinese automaker Chery Automobile Ltd., will take over as president and CEO of Ford China, a newly created position, effective Nov. 1. Chen succeeds Jason Luo, who resigned abruptly in January, as leader of Ford's China effort.
Ford also said that its China operation will become a stand-alone unit, on par with its North America and Europe business operations. Chen will report to Jim Farley, Ford's global markets chief. The remainder of Ford's former Asia Pacific unit will be incorporated into a new International Markets business unit. Ford said that more details on the new International Markets unit would follow in a later announcement.
Why this is good news for Ford shareholders
It's an encouraging move. Ford's shares have been hammered in recent months as investors have grown worried about CEO Jim Hackett's plan to revamp Ford's struggling business units.
No unit has struggled more than Ford China, which has seen its sales decline 30% this year due to a lack of new products. China is a huge market, with a huge number of participants -- all of the global automakers, plus a slew of Chinese domestic producers. The market moves very quickly because there are always new products to consider. Ford hasn't kept pace; sales of Ford's key products have faded because Chinese consumers see them as old news.
A China turnaround is seen as essential to Hackett's plan to boost Ford's profitability, but until very recently, Ford hadn't shared much in the way of details around its plans for the region. That's now changing. During Ford's third-quarter earnings call on Wednesday, Farley shared some additional details about the state of Ford's China overhaul effort.
- Ford has reduced excess inventories to reasonable levels. That hurt sales results in the third quarter, but it had the happy effect of returning Ford's dealers to profitability.
- Ford is gearing up to launch three important new products in China: the all-new Ford Focus (already launched in Europe), a new version of the lower-cost China-only Ford Escort compact, and a new midsize crossover SUV developed for China, the Ford Territory. Those three products will launch in the first quarter of 2019.
Farley also noted that Chen has deep operational expertise and said he will focus on reducing costs around purchasing and engineering, which Farley sees as key to boosting the profitability of Ford's China operation.
The upshot: Finally, Ford investors can see progress in China
Asked during Wednesday's earnings call, CFO Bob Shanks was unwilling to put a timeline on Ford's China turnaround. But it's clear now that progress is being made. Chen is an impressive hire -- exactly the right kind of executive Ford needs to stay competitive in the fast-moving Chinese market. It may be a while before Ford returns to profitable growth in China, but at least the path to that goal is now becoming visible.