Guess Who Ford Motor Just Quit Selling To...
Ford Motor Company just announced that they will be pulling out of the Chinese car market. Ford hopes to shift focus on their most profitable North American and Europe markets.
In a conference call, Ford's CEO Alan Mulally said, "We're not investing in our brand or our products for China." This is part of the company's strategy to retake control and focus on “the most important growth opportunities for the company.”
The United States' second largest carmaker has been in the Chinese market since 1998 but with much less success than expected because of stiff competition from rivals like General Motors and Volkswagen AG.
Mulally said that the company's Chinese sales are down sharply to below 2008 levels and "we have to focus on what we're good at."
Ford has been struggling in North Atlantic and Japan, which account for more than half of its total profits. The company is hoping to be profitable on $8 billion in revenue by 2015.
The company expects the move to revitalize North American sales, increasing its market share by 1 percent.
"As a result of recent changes we've made in our product line, we are optimistic that this action will allow Ford Motor Company to be more successful in the future," Mulally said.
The restructuring was announced last week after Ford reported disappointing January-March earnings. Ford's stock fell as much as 10 percent before paring the loss.
Mulally said that Ford employees from international operations will head back to the U.S. and Asia, where they will work on the company's "global transformation efforts." The new plan includes cutting Ford's global workforce by 12 percent, with most of the reductions at facilities overseas.
The Detroit-based automaker plans to close seven plants outside of North America and reduce its number of dealerships in key markets to about 3,000 globally. It also aims to revamp products across its eight brands, including redesigning some vehicles and launching all-new SUVs by 2020, as well as downsizing its Lincoln brand.
The company is also planning to expand in Asia, including China, where it will boost sales by 15 percent in the next five years.
Ford took a huge loss in Europe last year, but still contributed about 10 percent of the company's revenue and profit. However, Ford had to take a $700 million charge last month because of significant losses in Europe.
The restructuring plan is expected to cost $1.6 billion over the next two years but will save $5 billion by 2015. Another significant cost savings can be made from halting production of cars sold under the Mercury brand.
Having a major presence in China “is important, but we have to be successful,” Mulally said. "We are not going to invest any more money in that market until we are sure we can be successful."
A Ford spokesman said the company "has no plans to discontinue any of our vehicles in China.”
Ford sold only 51,992 vehicles through March this year, down 42 percent from the same period last year. [1]
GM also has been struggling in China because its sales fell 3 percent last year after double-digit growth for most of the decade. Last month, GM said it would close its offices in China, move its headquarters to Shanghai and cut global staff by 12 percent.
GM Chairman and CEO Fritz Henderson said annual sales in China will remain at about 500,000 vehicles by 2016. He also said that GM is discontinuing the Chevrolet brand name in China, which he claimed will be phased out over the next two years to make way for new models from parent company General Motors' Chinese joint-venture partner SAIC Motor Corp.
Ford’s competitors are also making changes in the direction of their China operations. VW took the lead in 2011 when it announced plans to triple its China production capacity to 3 million vehicles by 2018, making it the biggest automaker in China. VW has also announced plans to invest $7 billion in a new SEAT car and van factory near Tangshan in northeastern China that will produce 500,000 vehicles annually.
Ford may need to follow suit if it wants to keep up with its rivals. Mulally said today that the company has "a very good product plan for China and we've started delivering those products." He said he is hopeful about Ford's future in China.
The Chinese market is still a very important one for Ford. In the first quarter, Ford sold 474,000 Ford brand vehicles in China and 34,000 commercial vehicles.
In North America, new SUV sales are expected to increase 25 percent this year compared to last year. The company will also be introducing a hybrid version of its Transit Connect model in the U.S., which could create an important platform for hybrid models in China and other emerging markets.
"We're committed to this business," Mulally said. "We believe it's an important [international] growth area for us. We think it's important for our shareholders. So we'll continue to work on it."
One advantage of the company's move is that Ford will be able to put all of its resources into its core business, while also regaining control over new product development, marketing and manufacturing. Ford has been looking for a single-brand strategy in China since 2004, when it sold only one model there: the Mercury Milan.
Ford is betting on increased demand for SUVs and trucks in China, which have recently become very popular among Chinese consumers because of their fuel efficiency and relatively low price tag. Ford also plans to revamp its Focus model with a new face and interior design.
The carmaker plans to introduce a new Fiesta subcompact in the U.S. this summer and the Figo hatchback in China. Mulally said Ford is also planning to strengthen its commercial vehicle lineup, which includes its Transit Connect van, a favorite of Chinese taxi companies.
In 2009, Ford sold 617,000 vehicles in China, compared with GM's 1.27 million and VW's 234,000.[2]
Ford's net income slipped 0.5 percent to $1.28 billion in the first quarter of 2011 after sales increased 3 percent to $34.7 billion in North America, Europe fell 8 percent and Asia Pacific slipped 10 percent.
Conclusion
Ford knew that it needed to change its image in China. Now with its new plan, we will see how effective the changes will be for Ford.
Ford plans to expand its portfolio in China by launching at least 10 models there by 2013. The automaker is hoping that more vehicles will help the company regain lost sales in China. So far, in 2011, it has only sold 474,000 vehicles through March, compared with GM's 1.27 million and VW's 234,000.[1]
Ford is also committed to gaining a larger market share after losing significant sales last year by cutting production of cars sold under the Mercury brand and focusing on its cars and SUVs.