Why Ford Is Planning To Sell This Truck In China

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Ford Motor

Ford Motor Company (NYSE: F) has announced that it plans to launch the Ranger pickup truck in China in 2018. The U.S. auto maker had an extremely strong year in China in 2016, with sales growing by 14% compared to 2015 sales. Overall the company sold around 1.27 million vehicles in the country, making it one of the biggest markets for the company along with its native U.S.

However, compared to the U.S., Ford’s sales in China are mostly driven by sedans, instead of SUVs and pick-up trucks. Ford’s sales growth in China was largely a result of the growth in sales of SUVs Explorer and Edge, and the premium brand Lincoln. Now it wants to introduce the SUV Lincoln Navigator and the pick-up truck Ranger to grow its sales further.

The major reasons for introducing Ranger to the Chinese auto market are as follows:

  1. China is the world’s biggest car market, but most of the sales in this auto market are passenger vehicle sales. The commercial vehicle market in the country is still relatively small but growing at a fast pace. However, given its size, China is already the fourth biggest truck market in the world. Moreover, the truck market grew at 14% in 2016. Despite this, pick-up trucks only make up 2% of the overall market.
  2. The Chinese Government has relaxed restrictions on the operation of pick-up trucks in urban areas. This opens up a huge market opportunity for Ford which has seen its pick-up truck F-150 lead the U.S. auto market 35 years in overall sales and 40 years in truck sales. Moreover, pick-up truck sales are much more valuable than sedan sales and can help the company boost its margins in the region. Since, the company generates almost all of its profit from North America, it can benefit tremendously from increasing profits in other regions as well.
  3. China will be the fourth country in which Ford will sell its pick-up trucks. It will introduce the 4-door SuperCrew model and the next generation model of the F-150 Raptor. As wealthy Chinese consumers look to buy larger cars, demand for sedans is getting weaker and SUVs are driving sales growth. Other markets have seen SUV demand translate easily to pick-up trucks and Ford is banking on the same to happen in China. Car penetration levels are still less than 100 in 1,000 in China and most of the market is still untapped. This makes it a huge opportunity for Ford and if the company is successful in leveraging this opportunity, its valuation could see massive upside.
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