Car and truck makers sold 18.9 million vehicles in China last year, up 2.7% from a year ago, with growth sputtering from highs of 30% in 2010 and 42% in 2009. After overtaking the U.S. in 2009, China became the world’s largest auto market.
Ford Motor Company (NYSE:F) had a remarkable 2013 first quarter, growing 54% with massive contributions from the New Focus and the Kuga (sold as the Escape in the U.S.). Ford’s share is very small at 3% in China and it will have to grow by 25% each year for the next three years for the automaker to sell the 1.5 million cars it plans to make in 2015, representing more than three times the expected market growth.
Here’s how the automakers stack up:
| Estimated | Volkswagen | GM | Ford |
|---|---|---|---|
| 2012 Market Share % | 18.2 | 14.8 | 3.6 |
| 2012 Unit Sales Mn | 3.4 | 2.8 | 0.7 |
| 2013 Q1 Growth % | 21 | 12.6 | 54 |
| 2015 Unit Sales | 5 | 3.8 | 1.5 |
| 2013-15 Growth % per year | 9 | 8.0 | 25 |
| 2015 Market Share | 19.2 | 15.4 | 6 |
Volkswagen (ADR) (NASDAQOTH: VLKAY) is likely to remain the strongest competitor in China, and, like Ford Motor Company (NYSE:F), is also planning to add seven plants in China by 2018. Volkswagen is aggressive in its global ambitions and if it’s chief executive Martin Winterkorn has his way, Volkswagen would surpass both Toyota Motor Corporation (ADR) (NYSE:TM) and General Motors Company (NYSE:GM) financially by 2018.
For Ford Motor Company (NYSE:F) to penetrate the Chinese market and get to its market share it will have navigate some important trends
Important trends in the Chinese market:
Respect the Chinese
Chinese buyers started cold-shouldering Japanese cars over political differences. Toyota Motor Corporation (ADR) (NYSE:TM) saw sales decrease when tensions broke out between China and Japan over the East China Sea. Ford Motor Company (NYSE:F) tipped the hat in the right direction by structuring meetings around the Chinese clock.
As Synergistics’ Auto Trends report shows, Audi’s success in China was largely due to its localization strategy – the product was different and it wasn’t a hand-me-down. It was designed for Chinese roads, the uneven quality of Chinese gasoline, and its seats were designed to fit Chinese and not European shapes.
GM is another example of localizing its China strategy. It elevated its Chinese partner by setting up a strategic management office in Beijing to oversee and execute China’s global strategy and also gave it equal share in its exports to India.
This is a very important trend, especially when you’re branching out to the less- affluent markets; Tier 3 and below markets tend to spend only $12,000 per car and have per capita incomes of $15,000.
On the other hand, even with price-sensitive consumers there are preferences for better-integrated technology, emphasis on design and a need to have an emotional bond with the customer.
Think small and local
Chinese consumers save $300 in taxes driving cars with engines smaller than 1.6 liters and Ford equipped the Mondeo (the U.S. Fusion) with the smaller 1.5-liter engine to focus on this segment.
All foreign automakers have to take a local partner, and while there is an obvious preference for smaller local manufacturers who cater to the newer, less affluent buyer, it also opens doors for foreign makers who focus on this segment
Ford, because of its late entry, can’t get much of a foothold in the developed coastal and urban areas, with most dealers already taken by GM, Volkswagen and Toyota, and has to chase the second-string, less-developed inland markets. Ironically, this market will probably show higher growth if China develops its own consumer- driven economy instead of relying only on exports.
In 2011, 87% of China’s population lived in Tier 3 or lower cities, and their market share of the Chinese market was growing faster than the Tier 1 and Tier 2 cities.
From the “do or die” approach taken by both GM and Volkswagen toward China — as the only market capable of replacing a moribund Europe and realizing their global ambitions of being Top Dog — Mulally sure has a tough fight on his hands in the middle kingdom.
The article Ford’s China Strategy originally appeared on Fool.com and is written by Bobby Shethia.
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