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The Ford Focus Continues to Be a Superstar in China

By John Rosevear - Mar 6, 2014 at 6:15PM

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Sales of Ford's compact continue to drive big gains for Ford in the world's largest auto market.

The Ford Focus has been a huge seller in China. Its sales gains continued in February. Photo credit: Ford Motor Co.

Ford ( F -3.67% ) said on Thursday that its sales in China were up a whopping 67% in February, the latest in a long string of huge year-over-year sales gains for Ford in the world's largest auto market.

Ford has been investing heavily in an aggressive growth plan in China. But, if anything, its sales growth has outpaced its own optimistic expectations. 

Profits from the region have been limited by Ford's heavy spending on new factories and other facilities, but booming sales suggest that those investments will be well-rewarded before long.

The Focus continues to lead Ford's China boom
The big driver of Ford's sales boom in China continues to be the Focus, which was up 13% over a very good year-ago result. The Focus comes in two different flavors in China: the New Focus, which is the current global Focus as sold here in the U.S., and the Classic Focus, which is the last-generation European model modified to meet Chinese tastes and sold as a value-priced alternative. (Ford reports sales of the two as a single combined total.)

The New Focus is positioned at the upper end of China's compact-car market, sold as a premium model. That's in keeping with Ford's strategy in other parts of the world, and other new Fords are being positioned along similar lines. The latest of those is the Mondeo, a midsize sedan that will look very familiar to American eyes: It's the Chinese version of the Fusion.

The Classic Focus is Ford's value-priced compact in China. It complements the New Focus, which is positioned as an upscale offering. Photo credit: Ford Motor Co.

It replaced an older model that originated in Europe, also called "Mondeo," last summer. And as with its American sibling, sales have been strong: Mondeo sales in China were up 123% in February.

So far this year, Ford's sales in China are up 59%. That trend should continue: Ford China chief John Lawler said last month that he expects Ford's sales growth to outpace the growth of the overall Chinese auto market this year. He also said that Ford should sell more than 1 million vehicles in China in 2014.

Clearly, Ford's big investments in China are looking like good bets. That may be why another significant Ford investment in China came to light this past week.

A big boost for Ford's China R&D center
The Wall Street Journal reported on Wednesday that Ford is expanding its research and development facility in Nanjing in a big way. 

A Ford spokesperson confirmed to me that the company is investing about $100 million in its Research and Engineering Center in the eastern Chinese city of Nanjing. The site employs about 1,300 people now, and Ford expects to increase that to about 2,000 by 2018. That will involve some expansion -- a new building is on the way, as is an all-new test track, Ford says. 

China sales of the Ford Mondeo, a sibling of the U.S.-market Ford Fusion, were up big in February. Photo credit: Ford Motor Co.

What's this all about? It seems clear that Ford wants to do more product development work right in China. That is likely to be a competitive advantage: Local Chinese R&D teams will know best what modifications are needed to customize Ford's global models to Chinese consumers' tastes. In time, this center could also contribute to -- or even lead -- development of new global Ford models.

The upshot: Ford's China expansion continues to look like a great bet
Ford has committed about $5 billion to its ongoing expansion in China, a project that Ford's senior executives regularly remind us is the company's biggest expansion effort since the 1950s. 

Ford was a latecomer to the Chinese auto market, and has been spending big in an effort to catch up. It passed Toyota (NYSE: TM) and Honda (NYSE: HMC) in total sales last year, but it still trails China's two heavyweights, Volkswagen ( VWAGY -2.54% ) and General Motors ( GM -2.15% ), by huge margins -- and it has some work to do to catch up to Nissan ( NSANY 2.35% ), which is mounting its own big expansion effort in China.

Ford's goal is to capture 6% of China's market by 2015, a target that looks easily reachable from  here. But for all of its sales growth, Ford's profits from China have been relatively modest because of those ongoing investments. As those investments wind down and Ford's new Chinese factories get up and running, that should change in a big way.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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