Ford (NYSE:F) investors have a lot to be happy about after this year's run up of about 30%. That appears to just be the beginning of a long success story for a few different reasons. Momentum continues to build in the full-size truck segment which brings in more profit than any other segment for Ford and General Motors (NYSE:GM). In addition to the truck segment, the entire industry is rebounding with June's SAAR nearing 16 million for the first time in over five years. If Ford's share price is to break through $20 it is going to need to drastically reverse losses in Europe or improve in China. The good news is that Ford is on track to do both.
The situation developing for Ford in China right now is a very interesting one, and it's almost a hidden success. When I say hidden success, I mean that if you look at the quarterly earnings reports you won't see much profit coming from China, if any. That won't be the case for long; by the end of the decade Ford expects China to represent as much as 40% of its revenues. As large capital investments in the region begin to slow, more of those revenues will carry to the bottom line – quickly driving Ford's earnings higher.
It will take time and a lot of money because doubling Ford's market share in China by 2015 is no easy task – yet Ford expects to accomplish this goal. In addition to the 15 new models it will launch in China by mid-decade, it also takes an understanding of the culture, which Ford is continuing to gain knowledge of. Ford's Kuga is a good example of this knowledge turning into success.
One of the reasons Ford set record numbers in China, which I'm about to show you, was because of the Kuga compact crossover. It is a tweaked version of the Escape that we see every day, because in China many people that can afford the vehicle are businessmen who employ drivers and need luxurious and more spacious back seats to do business with clients. Ford was able to squeeze out some extra leg room using a couple tricks, and also upgraded the materials to give a more premium feel.
The Kuga is a hit with consumers, it's helped lead to the impressive sales figures in China. With the first six months of 2013 in the record books, Ford's sales in China increased 47% to 407,721 in wholesale units. The month of June alone was up 44% compared to last year and both figures set records for Ford.
Ford's passenger car joint venture, Changan Ford, also set records in the first half of the year, and is up 66% to 286,680 units. Despite a contracting commercial vehicle segment, Ford's Jiangling Motors Corporation investment managed to increase sales by 7% in the first half of the year to 110,230.
What's even better about the overall sales figures is that Ford is now competing in every segment of China's fast-growing SUV market with versions of the Kuga, EcoSport, Edge, and Explorer. With a better understanding of consumers in China, and with the introduction of 15 new models, it's clear that Ford's success will continue.
Consider that China's automotive market is already the world's largest and is still the world's fastest-growing. By 2020, many estimates have China's automotive market growing by the same size of Europe's market today -- an increase of roughly 12 million vehicles. That's an astonishing number, and with Chinese consumers more willing to buy imports because of perceived value, there are a lot of profits for automakers well positioned in the region – and Ford plans to be one of the big winners.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
More from The Motley Fool
What Happened in the Stock Market Today
Stocks had a huge day, sending the major indexes to new records. Shares of Juno Therapeutics soared following a buyout report, and Ford slumped on disappointing guidance.
Why Shares of Ford Motor Company Fell 7% Today
Ford's 2018 guidance didn't sit well with investors.
Ford's Behind-the-Scenes Focus on Data
Ford’s recent partnerships and small-scale tests could bode well for the future.