Selling More SUVs Could Help Boost Ford’s China Profits
Ford Motor Company (NYSE: F) ended the year extremely strongly in China with December sales growing by 23%. This meant that for the full year the company’s sales grew by 14%. The U.S. auto maker operates in the region through two Joint Ventures: Changan Ford, which builds and sells Ford Cars and SUVs; and Jiangling Motors Corp, which builds vans and pick-ups for the company. Additionally, Ford imports Lincoln brand premium vehicles and some other models for sale in the country. A large majority of the company’s sales so far come from Changan Ford. Ford’s sales growth in 2016 was largely the result of growth in sales of SUV models like Ford’s Edge, whose sales more than doubled in the full year. Additionally, Ford more than tripled the sales of Lincoln brand vehicles after its launch last year. However, in order to boost its profitability it needs to grow its Jiangling business.
While these results are good, there is still a lot of potential room for improvement in terms of profitability for the company’s China operation. This is underscored with a comparison to Ford’s North America performance. First, Ford sells less than half the number of vehicles in China than it sells in North America. Second, it makes less than a third of profit per unit sold in China operations. Even in a weak quarter for the company, its North America profitability is close to twice its China profitability.
The company is trying to plug this gap in profitability by increasing the presence of SUVs, MPVs and luxury vehicles in its overall sales mix. Ford plans to sell 300,000 units of Lincoln brand vehicles by 2020 and most of that growth is expected to come from China, which is the second largest luxury vehicle market in the world and could soon be the biggest.
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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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