Americans landing in Shanghai or Beijing for the first time often express surprise at the number of familiar-faced Buicks and Chevrolets they see on Chinese roads. It's a massive automotive market, already bigger than the United States' and still growing, and -- at least for the moment -- GM is its volume leader.
Late to the Chinese party
Whether because of a lack of resources or a lack of managerial vision, Ford didn't really do much in China until after Alan Mulally became CEO in 2006. By that time, the best joint-venture opportunities had been locked up by rivals -- and key players like GM and Volkswagen (OTC BB: VLKAY.PK) had already begun to establish their brands with Chinese consumers.
Ford's making a solid effort at playing catch-up -- the company plans to double its Chinese workforce and add 15 new models in China by 2015. But with Ford's joint venture currently lingering in ninth place on China's auto-sales charts, the Blue Oval clearly has its work cut out for it. While the Chinese market is still fluid enough that big jumps are probably possible, in the near term at least, Ford is unlikely to be more than a niche player in the Middle Kingdom.
That may be one reason Ford has been increasing its focus on another huge potential emerging market -- Russia.
To Russia, with love
Russia's new-vehicle market is a fraction of the size of China's -- fewer than 3 million vehicles will be sold in Russia in 2011, compared with about 19 million in China -- and growing more rapidly even as China's growth has cooled. Auto sales in Russia were up 26% in September over year-ago figures and are expected to be up about 30% this year, and Ted Cannis, the new CEO of Ford's Russian joint venture, said earlier this month that demand remains strong despite global economic concerns.
Ford is in the midst of launching a new joint venture with Russian firm Sollers that will triple the Blue Oval's production capacity in the country. In the process, the new venture will allow Ford to take advantage of government incentives like exemptions from taxes on imported parts. These incentives are part of a larger effort by the Russian government, concerned about their economy's dependence on oil and gas exports, to encourage industrial investment.
Russia's political environment isn't exactly the most stable and predictable, but Cannis believes that political trends will favor an expansion of the auto industry in the country in coming years. His job is to ensure that Ford is well positioned to take advantage -- and the company has already made a good start.
Early days, but well positioned for growth
Ford isn't the only foreign automaker taking advantage of the government's incentives, but the company has spent the past several years making inroads into the Russian market. More than 500,000 copies of Ford's Focus compact have been sold in Russia over the past decade, and the car is regularly one of Russia's top 10 sellers.
Although it trails subcompacts from Hyundai (OTC BB: HYMTF.PK) and Renault (OTC BB: RNSDF.PK) on the year-to-date sales charts, the Focus has handily outsold entries from rivals GM, VW and Toyota
More significant for shareholders, though, is the growth opportunity Russia presents. There are a variety of reasons new-car buying hasn't yet taken off in Russia the way it has in China. But many expect that it will, in time, as the country's economy continues to advance. The Focus that Ford sells in Russia is the same new model that has drawn critical acclaim in Europe and the U.S., produced locally in a factory near St. Petersburg. It's an excellent product, and an ideal way to introduce Russian customers to Ford.
Russia has a long way to go before its consumer economy reaches the levels China has achieved, but the growth of its new-vehicle market is critical for Ford. Ford may have missed the boat on China to some extent, but the Blue Oval appears well positioned to ride the coming Russian wave.
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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.