Will Ford’s Great-but-Late Strategy Payoff?
Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When I first set my eye on the 2013 Lincoln MKZ some months back at the New York International Auto Show, I wished Ford (NYSE: F) would soon let China, the world’s biggest car market that also has a penchant for luxurious wheels, get a taste of its iconic brand.
By 2014, China should be able to feel the Lincolns, as talks with dealers go underway by the end of this year. By way of gaining traction in a critical market and a segment that’s doing exceptionally well lately, the move seems fine. But what’s perturbing me is the gap. Two years is a long time, and a lot’s going on in the Chinese luxury market already. What if competition gets almost totally out of Ford’s hands by the time Lincoln reaches China?
Last in the race?
Lincoln lags behind rivals, and how! At 85,643 units sold last year, it was butter-pale in front of General Motors’ (NYSE: GM) sales of152,389 Cadillacs and Toyota Motor’s (NYSE: TM) sales of 198,552 Lexuses. It might be too hard on Ford if I even mention the sales figures for luxury leaders BMW, Audi, and Mercedes-Benz (to give you an idea, Benz sold over 300,000 vehicles in the first quarter this year alone). And this is just one part of the story.
The bigger concern is that these companies already have a bigger hold in China’s luxury market than Ford. The latter three alone dominate three-fourths of the market, and GM’s share of around 10% is more than four times that of Ford. Clearly, Ford has a lot of work to do to even get a decent spot in the Chinese luxury market -- not that any of the companies will sit still while Ford readies its Lincoln for the Middle Kingdom. New plants, additional capacities, slew of new models – each one has huge plans lined up. Tough times ahead, Ford.
When money speaks
What Ford is probably pinning hopes on is the way the Chinese luxury market is booming. It’s huge, and growing like a weed. Both Mercedes and Audi achieved record sales during the first quarter thanks to robust demand from China. BMW’s 7-series sedan sells more in China than anywhere else in the world. The nation is now also the biggest market for Rolls-Royce and Bentley, which today sell as many units in China as they do in the U.S.
But the best example of what the market can do for an auto maker is the case of Tata Motors (NYSE: TTM), which, like Ford, has been a pretty late entrant to the China game. Ironically, Tata bought Jaguar-Land Rover from Ford some years back, and while Ford has become a mere drop in the luxury sea today, JLR is dancing its way up. JLR’s sales in China surged a massive 76% last year compared to 2010, and I won’t be surprised if China soon becomes its leading market.
Clearly, affluence is the name of the game in China, so much so that while the total car market grew a mere 2.9% year-over-year during the first six months of the year, China’s luxury car segment rose a solid 25%. Says it all, doesn’t it?
Hand-in-hand with the General
Attention on Lincoln also seems to be one of those cases where Ford and GM are walking similar grounds – giving their struggling luxury brands a desperate facelift. GM has been surprising us with one-after-the-other Cadillac versions (including the smart convertible Ciel), though a flagship sedan’s birth might be some years away. Cadillac ATS – the small luxury car– is about to hit the U.S. roads. GM is pitching Cadillac to hit the top spot in a couple of years. Likewise, Ford has ambitious plans to roll out as many as seven redesigned or new Lincoln models by 2014 to save the face of the only brand that it held on to while selling off others some years ago. When it comes to chasing the millionaires and billionaires of China, GM might find the going a little easier than Ford in its aim to increase its China sales five-fold by the end of the decade.
Luxury with Lincoln is just one side of Ford’s China plans though. It includes 15 new Ford vehicles and 20 powertrains by mid-decade through five new factories, all with the aim of increasing Ford’s global sales by as much as 50% from 2010 levels. Only, it would be great if Ford manages to drive Lincoln into China earlier than planned. Meanwhile, it can probably bask in Focus’ success, which has just toppled Toyota Corolla from the world’s top-selling car’s seat for the first half of the year.
Ford might be too late to the China party, but as they say, better late than never. I am happy to hear about its Lincoln plans, but my eyes are itching to see Ford pull up its socks in Europe. The market’s hitting it hard, and Ford is sticking to its bullets by neither offering killer discounts to boost sales nor planning any major production chop downs to save costs. Something brewing inside Ford’s discussion rooms? Stay tuned to know.
Neha Chemaria has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.