U.S. auto manufacturers have taken a liking to the Asia-Pacific sector, especially China and India as key areas of interest. The outstanding growth in sales in the automobile industry in China has given automakers such as Ford (NYSE: F) the impetus to expand operations there.
Telemetry
U.S. auto giant Ford is making aggressive moves in the Middle Kingdom. The company is planning to launch 15 new models in China and hopes to increase its current 340 dealerships to 1,200 by 2015. It also may be entering into a joint venture with China's Chongqing Changan Automobile and Mazda to create a wholly new brand in China. These efforts will possibly help increase its revenues from the vast Asia-Pacific market, where Ford has yet to make its presence felt.
There are many reasons to be doing this. Sales of China's automobile industry have seen staggering growth in recent years. Growing from a mere 6 million units in 2005, the country now moves a staggering 18 million units a year. Out of this 18 million, Ford has a market share of only 2.5% in China, and the latest initiative appears to be an attempt to up that share.
On its own, Ford is doing well enough in China and elsewhere these days. Ford sales in the country went up by almost 30% in 2010. Plus, stronger-than-expected recoveries in the company's traditional markets are fueling more optimistic expectations. But all sorts of underlying fundamental indicators show that China is where real future growth lies for Ford.
For example, the population of eligible Chinese drivers is expected to jump by 50% in the next 10 years. That number is expected to touch a staggering 1.1 billion by 2020 from 700 million at present. This, along with an expected rise in disposable income, would clearly translate into higher automobile sales.
Currently, only 6% of Ford's total revenues come from the Asia-Pacific-Africa region. If Ford gains traction in the region, investors could see some serious rewards.
Others are in the race, too
No doubt there is lots of competition, including from fellow Detroit firms. U.S. carmaker General Motors (NYSE: GM) has already established a substantial presence in the Chinese market and enjoys a 12.8% market share. The automaker sold more than 2.3 million cars last year. GM plans to release 60 new and upgraded automobiles within the next five years and is hoping to double revenues in China. Ford, by doubling its dealerships, clearly understands the need to compete on a more even scale with GM in China.
Similarly, Honda (NYSE: HMC) is now looking to produce electric cars in China in 2012, following a 0.8% uptick in sales in the first quarter. The company is also looking at capacity expansion to meet the expected growth in demand for vehicles in China.
The world's largest automaker, Toyota (NYSE: TM), cannot be counted out, either. It is also planning to capitalize on the increased demand for automobiles in China, where it hopes to double its sales to around 1.8 million in the next five years. However, the Japanese crisis has dealt it a harsh blow when most of its factories had to be shut down following the earthquake.
Ford faces stiff competition from rival carmakers in Japan and the U.S., and it needs to act quickly to take advantage of the fast emerging Chinese market. Hopefully, these new initiatives will allow it to finally make its presence felt in a meaningful way in China.
The Foolish bottom line
The world's top automakers have put their bets on China with the hopes to increase their future revenues, and Ford has followed suit. Ford has placed its bet on the expected increase in automobile demand in China, in the years to come, and I think it is taking the correct steps, if not slightly late, to capitalize on this emerging market.
