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Ford Motor Focuses on Emerging Markets
Posted by: Live investor (IP Logged)
Date: November 16, 2013 01:20PM
Ford Motor (F) is preparing to launch a small car next year to increase penetration in emerging markets. 2014 could be the most challenging year for the second largest US automaker as it aims to build strategy to make global models which could be offered worldwide.
The company’s top executives had gone to the Camacari plant located in Brazil to display the concept model of its five-passenger hatchback Ka. The Blue Oval plans to launch this model in Brazil next year and targets to introduce this car in other emerging nations as well. The car shall compete with Volkswagen’s (VLKAY) Polo, Chevy Onix, and Fiat Uno.
China is one of the top emerging nations in Ford’s target list. The mainland has become a hotspot for global auto giants given the rising disposable income and the rising middle class population of the economy.
Focusing the long neglected emerging market
Ford’s Ka is the smallest and cheapest model the carmaker has ever presented for global exposure in the sub-B segment. The Detroit automaker entered the emerging nations pretty late compared to fellow players. The company hasn’t made much progress in the emerging markets, but now it realizes the potential that economies such as Brazil, China and India offer for the auto industry. For instance, archrival General Motors (GM) is one of the largest foreign automakers in China, enjoying as the economy’s appetite for cars is increasing. Similarly Volkswagen is also making hay while the economy shines.
In fact foreign automakers including Volkswagen, General Motors and Ford made good progress in the current year. One of the prime reasons is that the Chinese population shun Japan-made cars from Toyota (TM), Honda (HMC) and Nissan (NSANY) after the political clash over a group of island. Ford’s growth has been tremendous in China in current times and the automaker targets to increase its market share to 5%. The carmaker has huge plans of investing in China to expand its production capacity to cater to the growing demand.
Vehicles such as the Ka compact are important for Ford to penetrate in emerging markets where competition is intensifying. Joe Hinrichs, the Head of Ford’s operations in North and South America said that such “entry-level family car” would help the company “to move into areas of the business where we have historically not had good share, not made money”.
So what is the strategy?
Ford’s Ka is an output of the company’s “On Ford” plan which aims to make global standardized cars which would be sold across the globe with very little customization to fit the local taste. Such strategy would help lower production cost, increase efficiency, and widen profitability margins.
So what is the expected price of Ka? Ford has not revealed the price tag of Ka, but the company said that the current model of Ka is sold between $10,000-12,000 in Brazil. The car might be a late entrant in the emerging market, but it is ready to race with other models. Ka is aimed to attract entry level buyers of emerging markets belonging to the middle class section of the population. India’s Tata Motors (TTM) also targeted this section of the population with the Nano, which costs as less as $2,000. But it failed to attract masses as the company positioned the car “as a step up from a motorcycle” which immediately snatches away the feeling of owning a four wheeler. Hinrichs said the Ford made sure not to repeat such a folly. It is therefore giving a touch of chrome in the car, which gives it a premium, and broad look to differentiate it from other low budget cars.
Rarely companies have made profit out of low cost cars. It would be exciting to see how the Ka is received by the buyers and what review it earns from industry trackers.
Stocks Discussed: F, GM, TM, VLKAY, NSANY, HMC, TTM,