Ford Motors Will Exit Indonesia and Japan In 2016: Why This Will Not Impact Its International Business?

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Ford Motors‘ (NYSE:F)  announced recently that it will close down its operations in Japan and Indonesia this year. Having struggled in these markets for minimal market share, the company see slight prospect for future profitability and will cease all operations. [1] According to our estimates, Ford’s international segment (including trucks and cars) accounts for around 12% of its valuation and we expect a steady increase in the company’s international market share over our forecast period. In 2015 Ford sold a total of 11,000 vehicles together in Japan and Indonesia, [1] which is an insignificant number compared to our estimated total sales of around 70 million vehicles by the company internationally, in the same year. Furthermore, given Ford’s minuscule market share in these countries, we do not expect them to drive the company’s future growth.  Thus exiting these two regions should not have any impact on Ford’s international business.

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Japan And Indonesia Not Key For Future International Growth

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Ford Motors cited its inability to gain market share in Japan and Indonesia and no path to sustained profitability as the main reasons to exit Indonesia and Japan. While the Japanese auto market is dominated by Toyota Motors and other local players, Ford could not make inroads in this country, despite its presence since 1974. In 2015, Ford’s market share in Japan was around 1.5% of the new car market, which is witnessing a declining trend with sales in the first ten months of 2015 down by 7.3% compared to the same period last year. [2]  Given the dominance of other auto makers in this region, we believe it would be tough for Ford to gain a higher market share in this shrinking market, hence its exit from the region should not impact the company’s growth prospects.

While the Indonesian market might have a growth potential in future, given the low numbers of car ownership in the region, Ford’s market share in the new car market of Indonesia was only 0.6% in 2015. The country is also witnessing a decline in car sales as its struggles with an economic slowdown. Total car sales in Indonesia decreased by 7% year on year in December 2015. [3].

While we expect Ford Motors to gradually increase its international market share from 4.6% in 2015 to around 4.7% by the end of our forecast period, we believe China and Europe could be the key regions for its international growth.  Increased focus on these regions and exiting markets where the company is unable to gain market share and find a path of profitability appears to be the right strategy for Ford.

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Notes:
  1. Facing Weak Market Share, Ford To Exit Japan, Indonesia This Year, Reuters, January 25, 2015 [] []
  2. Japan new car sales down 4% in October in a deteriorating economic environment, Focus 2 Move, November 2015 []
  3. Indonesia Total Car Sales, Trading Economics []