Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Ford's China Turnaround Just Hit a Speed Bump

By John Rosevear - Dec 25, 2018 at 9:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After years of growth, China's new-car market is slumping.

Ford Motor Company ( F 2.03% ) said that its sales in China were down 55% in November, despite the launch of two new models tailored to Chinese tastes.

Ford has been working for about a year on a turnaround effort for its once-promising China operation, which has fallen on hard times as Ford's product cadence hasn't kept up with rivals'. In addition to its own troubles, Ford is now facing a big external headwind: After years of growth, China's new-car market is weakening. 

A blue 2019 Ford Focus sedan, seen from behind on a Chinese city street.

The Focus has been one of Ford's best-sellers in China, but an all-new version didn't help in November. Image source: Ford Motor Company.

China's mass market is slipping, but luxury is holding up

China's overall market for "light vehicles" (cars, pickups, SUVs, and small vans) was down 16% year over year in November, with fewer than 2.2 million vehicles sold. Year to date through November, it's down 2.8% to around 21.5 million vehicles sold. 

But the decline isn't spread evenly across the market. While mainstream brands like Ford are hurting, luxury brands -- including Ford's own Lincoln brand -- are doing better.

Automaker Nov. 2018 Change vs. Nov. 2017 YTD 2018 Change vs. YTD 2017
Ford 52,434 (55%) 695,028 (34%)
General Motors' ( GM 0.33% ) joint ventures 361,940 (18%) 3.6 million (1%)
Volkswagen brand 304,700 (8%) 2.82 million (0.5%)
Geely brand 129,340 (8.4%) 1.4 million 29%
 
BMW Group 60,990 10.3% 577,058 6.4%
Mercedes-Benz 52,151 2.6% 603,089 12%
Audi 57,721 2.7% 597,451 13%
Lincoln 5,216 3% 49,586 3%

Data sources: The automakers, Automotive News. Note that figures for GM include only the vehicles sold by its two joint ventures with Chinese automakers. GM also sells vehicles imported from other parts of the world in China; sales results for those are reported quarterly. 

As you can see, it's kind of a tale of two worlds. While GM and VW are doing better than Ford, both saw sales decline by double-digit percentages in November, as did domestic Chinese powerhouse Geely. But the luxury brands all managed to post gains. (GM's figures include a small number of Cadillacs; it's likely that the Cadillac brand also managed a gain in November, but we won't know for sure until GM reports full results in January.)

Unfortunately for Ford, Lincoln sales are still just a small portion of its overall sales in China (though the portion is growing as Ford sales decline). That leads us to the big question: Why were Ford-brand sales down so much in November?

All-new compacts don't seem to be helping yet

The short answer is that we don't really know what happened to Ford in China last month, because Ford has sharply reduced the amount of information it releases on its sales in China. Specifically, Ford no longer shares model-by-model sales results for China.

A 2019 Ford Escort, a brown compact sedan, with Chinese-language license plates.

Ford revived the Escort name for a simple, affordable sedan designed especially for China. Image source: Ford Motor Company.

We do know that two important new models, the all-new compact Focus and a revamped version of the China-only Escort, began arriving at Ford's Chinese dealers in October. The Focus is the new-generation model that Ford recently launched in Europe; it's positioned as a premium model in China. The Escort is a revamped version of the prior-generation Focus, offered in China as an unostentatious, value-priced alternative. 

These are important vehicles in China. Through September, the Focus and Escort together accounted for about 31% of Ford's total sales in the country in 2018. But we don't yet have any idea how the new Focus and Escort are performing at dealerships. 

Ford's China turnaround will take time

During Ford's third-quarter earnings call, executives pointed to some signs of improvement in China. Global markets chief Jim Farley noted that Ford had reduced its dealer inventories significantly in the third quarter, hurting Ford's results (because it shipped fewer vehicles to dealers) but helping its dealers return to profitability. 

Ford also hired a new leader for its China operation. Veteran executive Anning Chen, most recently CEO of Chinese automaker Chery Automobile, took the newly created position of president and CEO of Ford China on Nov. 1. 

Chen has a strong resume and should be able to get things moving in the right direction -- assuming he has some help from the overall market. Right now, that doesn't look like a sure bet, and that means Ford will probably continue to struggle in China for a while longer. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$19.58 (2.03%) $0.39
General Motors Company Stock Quote
General Motors Company
GM
$58.06 (0.33%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.