Lincoln in China: Will it Help Ford?
Rekha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ford Motor Co. (NYSE: F), the Dearborn-based automaker, has good news for the luxury buyers in China. The company is struggling to defend its territory in its home market from the German and Japanese auto giants. It is looking for a bright spot in China. They reported that China would be the first major market for Lincoln outside the US. Within two years it is going to launch vehicles from its Lincoln brands. However, the second largest US automaker would have to compromise with its margin as a heavy import tax of about 25% would be charged, since the carmaker would initially import it from the US.
The management has been trying to revive the image of the Lincoln brand in the US, but they had eyes on the Chinese market and consumers for a long time. The announcement actually came as a surprise since Ford had initially said that only after it re-establishes its image in the US, it will spread its wings abroad and now, Alan Mulally, Ford’s CEO, is considering this to be a more appropriate time.
Ford will be facing tough competition in China as Toyota's (NYSE: TM) Lexus, Nissan's Infinity, General Motor’s Cadillac also look to expand their market in China. There are speculations that the American luxury brand may not find favor in the country that go for the German cars like BMW or Volkswagen. Things do seem bleak for Ford when General Motors, one the favored companies have suspended their production for the second time this year due to soft demand. The company, though, is planning to make investments in the Russian market and to double the production of cars and components by 2015. GM is all set to bring more Cadillac products, increase local production and sales outlets in China to boost sale five fold and match US deliveries by 2020.
Toyota, the world’s top automaker, also has a strong hold in the Chinese auto market with the launch of the Camry sedan, even though it had made a late entry. Toyota is strengthening their global supply system in emerging markets and is increasing localization. By December 2012 it is set to release compact vehicles specifically designed for the emerging markets. Toyota has reclaimed the market share it had lost a year back owing to Japan's natural disasters. Its sales rose 46%, 6% more than the expected projection of 40%. Nissan has also announced the launch of five vehicles within 15 months. It has already launched Altima Family sedan and Pathfinder sports-utility vehicle. The Altima is giving a fierce competition to Toyota’s Camry and Honda’s Accord which are the cars favored by consumers.
But this does not mean that it is the end for Ford’s Lincoln. It is all set to launch low cost cars in answer to GM's Sail car, by doing so the company is going to attract consumers who would make low investment. Strategies of making a network of dealers who would help polish the image of the car against the existing heavyweight German cars, which control 80% of Chinese luxury market. Promoting Ford’s history could also help Ford to compete successfully.
The company is all set to attract the luxury consumers in China, the young affluent buyers can't wait for the MKZ sedan which comes with push button transmission, a roomier back seat, non-fussy dash board and a less powerful engine for fuel economy conscious Chinese consumers. Lincoln, which had been a style icon and favorite of some American Presidents, can appeal to those consumers who want to make a style statement. Driving this American luxury car is something different and makes a statement that will surely attract the Chinese consumers who want something different.
Lincoln’s sales are expected to improve when it starts selling the MKZ in China. The aggressive growth strategy will help the company to increase its global sales by 50 percent.
Even with the concerns over China’s slowing economy and tough competition, Ford looks ahead to plenty of growth opportunities as the consumers who go for luxury brands of well-known companies would buy Ford's cars and brighten the company’s hope. Premium brands will upgrade Ford's image in the eyes of status-conscious Chinese consumers. The future of Ford looks promising with it's international growth strategy. Moreover this seems to be good time to invest on cars as the automobile companies report double-digit sales gain. The customers are flocking to showrooms without any worries for high gasoline prices and a slow economy.
rekhamarwah has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.