Last August during a typical summer swoon for the Detroit automaker, Ford's (F 0.90%) stock price hit a 52-week low of $8.82. Since then it's been all uphill for the stock price, recently topping $16 and settling into the mid-$15 range after a few rough days in the market. As good news for Ford keeps rolling in, I can't picture another summer swoon unless the overall market has a significant pullback. After a great May here in the U.S., even more great news emerged about sales in China – the world's largest and fastest growing auto market.
China sales
We'll get to the actual sales data in a second, and it's good stuff. However, there was recent news that most investors overlooked – the small factors that add up and ultimately sell a consumer on a brand or product.
One of Ford's most popular vehicles in China is the Kuga compact crossover – which we know as the Escape. Chinese consumers are different from Ford's historical consumer in the U.S. and Europe – the differences require small tweaks in the vehicles in order to have success. For instance, most of the Chinese business people that are the targeted audience have chauffeurs to drive them, while they speak with clients about business in the back.
This change in consumer desire led Ford to change its Kuga in China to have a very luxurious backseat with more expensive material. Also, since the Kuga is built on a global platform, Ford pulled a few tricks to get extra knee space as well as ash trays because smoking is still prevalent in China. Ford also spent more time improving its luxury features because it sells more cars that way in the region. According to Automotive News the top of the line Escape Titanium sells for almost $36,000 in the U.S. yet sells for over $44,500 in China – a healthy increase for the bottom line.
With a better understanding of the Chinese consumer it will allow Ford to become more profitable in the region faster, and the company should start seeing improvements on the region's bottom line.
Ford's sales in China came in 45% higher this May, compared with the same time last year, good enough to set the record for sales of passenger vehicles at 70,540. Ford's joint venture partners, JMC and Changan, also increased 21% and 48%, respectively, compared to last May. For the first five months of this year Ford sales totaled 332,467, a 48% increase from last year.
Ford's recent success is driven by the Focus which remains Fords best-selling model in China; it sold 155,000 units for the year and 27,345 in May alone. The Kuga might have something to say about claiming the top spot when it has a full year of sales under its belt; it topped 28,000 units sold last month.
Bottom line
The U.S. market fuels nearly all of Ford's profit, but that's going to change over the next two to three years as management expects to double its market share while launching 15 new models in China. Recent success with the Kuga is great news for investors that are banking on Ford understanding the Chinese consumer well enough to gain ground on rival General Motors, which is one of the dominant players in the region. One thing is for sure, Ford has made a substantial first step in helping to secure its future profitability and looks able to take advantage of a quickly growing market.
