Will Ford Motor Company (F)’s Plans Work in China?

More importantly, China might experience overcapacity in the next few years with capacity additions outpacing the growth in demand. With foreign as well as local manufacturers all ramping-up production, that production is expected to almost double to 35 million units within the next three years. However, according to a McKinsey report, demand will only rise by about 8% annually until the end of the decade.

We have all seen the outcome of excess supply in Europe, and I hope China does not succumb to the same fate. Automakers will have to tread these waters cautiously.

Competition

Apart from the local forces, the biggest competition comes from Volkswagen and GM, which are reaping the first-mover advantage in China. According to LMC, GM has 15.6% market share, while Volkswagen has 14.5%. In comparison Ford has around 3% market share.

GM derives around 22% of its sales from China. It’s having a great run in the country, with sales up 9.6% in the first quarter — the company sold 816,373 vehicles. Buicks and Wuling minivans are the rage with the Chinese and represent the biggest sales drivers. The strong sales are helping GM offset the declines that it is facing in Europe.

As I write this, GM is gearing up to announce its strategic plan for China. This does not come as surprise, as after the announcements by arch-rival Volkswagen and now Ford, an announcement was forthcoming.

In March, Volkswagen disclosed its plans to ramp up production by 70% through 2018. The company will build seven more plants and increase its manufacturing capacity in China to four-million units from the existing 2.3 million.

Volkswagen derives around 30% of its global sales from China. The company enjoys excellent demand for its Audi lineup, and its Skoda sales are growing rapidly.

In the first quarter, deliveries for these two brands grew by 14.2% and 30.5%, respectively. The German automaker is now trying to get into the small-car segment and will be developing a new car for China priced in the range of $9,000 to $9,500.

Parting thoughts

It is heartening to see that Ford has a clear strategy for China, where it significantly lags its peers. Mulally’s plans sound good and his record for turning around operations is legendary. Ford is already positioned well to reap the rewards of the recovery in US market. Now if it can emerge as a beneficiary of China’s economic expansion it would be a huge upside for the investors.

The article Will Ford’s Plans Work in China? originally appeared on Fool.com.

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