Ford's China Turnaround Just Hit a Speed Bump

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

John Rosevear
John Rosevear
Dec 25, 2018 at 9:05PM
Industrials

Ford Motor Company (NYSE:F) 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' (NYSE:GM) 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. 


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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.