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Mayank Marwah
Mayank Marwah
Articles (596) 

Ford Struggles in China as Domestic Automakers Put Pricing Pressure

Company reports July sales decline in China despite strong commercial vehicles sales

August 27, 2017 | About:

The second largest American automaker Ford Motor (NYSE:F) reported disappointing sales in China, down 7% to 84,474 vehicles. Robust demand for commercial vehicles was not able to offset poor sales of small sedans. The Dearborn automaker’s year-to-date sales volume plunged 7% to nearly 622,000 units’ year-over-year.

Here’s a detailed look at the company’s performance in the mainland.

What caused sales slump?

Ford has had a tough year in China so far with mixed year-over-year monthly results. A change in the Chinese government tax policy has had an adverse impact on the company’s small cars. Approximately 70% of Ford’s lineup comprises cars with 1.6 litre or lower engines. Tax rate increased from 5% to 7.5% at the start of the year. As a result, customers turned towards the low cost models produced by domestic Chinese automakers.

The raw numbers

Ford experienced success as far as the commercial vehicle segment is concerned. While Jiangling Motors Corporation’s (JMC) monthly sales stood at approximately 20,000 vehicles (up 11% year-over-year), its year-to-date sales was more than 163,000 units (up 17% year-over-year). Lincoln sales in China was astounding, up 68% to more than 4,700 units while sales during the first seven months almost doubled to 29,000 units compared with the same period last year.

Ford’s joint venture in China, Changan Ford Automobile’s (CAF) sold more than 58,000 units in July which represents a decrease of 16% in sales compared with July 2016. Year-to-date sales of CAF totaled more than 418,000 units, down 17% year-over-year.

Ford Mondeo sales improved 17% in July year-over-year delivering roughly 8,000 vehicles. However, the company’s two best sellers in China, Focus and Escort suffered steep sales decline. Sales of Focus and Escort were down 20% and 10%, respectively. Mustang sales rose 25% in July year-over-year. Sales of Tourneo climbed 59% and that of Everest skyrocketed 82% as compared to July 2016.

Last word

Ford’s struggle in China continues as the company’s equity income from its two joint ventures in China dropped 34% in the second quarter of the year to $195 million. The company’s main challenge happens to be the domestic Chinese automakers that have started offering economical and competitive models using predatory pricing strategy in view of gaining market share.

Ford still remains unsure as what they must do to boost sales in China. A price cut would mean that they would have to compromise on their bottom line. The company plans to launch a revamped edition of the small EcoSport SUV later this year.

Besides, Ford announced recently that it signed a memorandum of understanding with Anhui Zotye Automobile with the vision to explore the development of a fresh line of all-electric passenger car in China. Anhui Zotye is a Chinese company that has been engaged in the manufacturing of all-electric and other vehicles over the past decade. As of now, good news is that commercial vehicle sales have begun to show strength. While Ford might have to wait a little to see its sales improve, the launch of the new portfolio of electric vehicle in China certainly brings a lot of excitement for the company.

Disclosure: I do not hold any position in the stock mentioned in this article.

About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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