How Ford Increased Its China Sales In July And August

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China is one of the most important growth regions for Ford Motor (NYSE: F). However, its performance in the region in the second quarter of fiscal 2016 was highly disappointing. The company saw its equity income from the region decline by 28% and average equity income per unit sold decline by 17%. The Detroit-based auto maker operates in the world’s biggest car market through two joint ventures: Changan Ford and Jiangling Motors (JMC). The former is responsible for the manufacturing of Ford’s passenger cars in the region and the latter is responsible for the manufacturing of commercial vehicles and trucks.

Domestic Competition

In the second quarter, the U.S. auto maker was caught off guard by increased local competition and sales of its passenger cars suffered as a result. Sales of Ford’s compact SUV Kuga declined by 18% in the first half of the year. But in August, the company saw its sales grow by 22% year over year. This was the second consecutive month in which Ford’s sales increased: the company’s sales increased 15% year over year in July.

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Strategy Shift

The sales bump over the last two months reflects a trend change in the Chinese auto market and a change in emphasis from the company. While sales of JMC are down 3% compared to a year ago, its sales in August grew by 16% as China’s commercial vehicles market begins to look up. Ford competitor General Motors’ commercial vehicle producing joint venture Wuling also had a good month, with sales rising 12% to 119,745 units.

However, most of the increase in the previous two months can be attributed to the launch of new models. Ford launched a slightly refurbished version of Focus compact and saw its sales increase 92% in August. Sales of the Ford Escort also grew by 49% in the month. The company is also planning to launch a revamped Kuga in the region later this year, which should also give the company a significant uptick in sales. Since, Ford doesn’t reveal much about discounts and incentives from the region, it is hard to know whether the sales increase will also produce an increase in profits for the company, but new model launches generally command higher prices. Additionally, there are doubts as to whether this sales rally can be sustained, given the doubts over the macro economic situation in China.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor

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