Ford Motor lags its international automaker competitors in China and is investing heavily.
Ford China reported January sales of 30,976 vehicles — a -42% freefall compared with sales of 53,340 vehicles in the same period last year, and just under 50,000 vehicles in December of 2011. Ford attributes the drop to low inventories, without explaining why they were low after last year’s production increases, a three-day shorter selling month, and the Chinese New Year holiday occurring in January instead of February.
General Motors also posted a drop of 8% in January to 246,654 vehicles – GM’s second-best January ever in China where it is well established. A GM spokesperson said a big pickup in sales could occur in February as payback for the shift in the Chinese lunar year. We’ll see – GM set record February sales in China last year, with the New Year in full moon play.
The open question is whether this is the beginning of a prolonged downturn in the Chinese economy that some western economists are predicting as a result of Chinese government policies to slow down growth. If so, it will be an unwelcome development for both GM and Ford with their weak balance sheets and their loss-making operations in Europe. Things will become clearer when other automakers report China sales. And the old adage that one month does not a trend make could still apply.
Ford, the Number Two U.S. automaker after GM, is far behind competitors in Chinese auto sales where GM routinely leads at more than 2 million vehicles annually, compared to a record 519,000 in 2011 at Ford. So Ford is investing heavily in an attempt to catch up. Ford currently has seven plants under construction in Asia-Pacific, and CFMA are opening a new assembly plant in Chongqing in Q1. Simply put, Ford desperately needs the positive cash flow that strong sales generate, so if the downward January sales trend continues it will hurt Ford’s financial results in 2012, as well as GM’s.
In the fourth quarter of 2011, Ford Asia Pacific Africa reported a pre-tax operating loss of $83 million, compared with a profit of $23 million a year ago. (See Ford Posts 2011 Profit of $8.8 Billion, Up $1B from 2010) Another threat to Ford’s financial health is promise previously made in Europe and North America about retirement benefits. Worldwide Ford has $15.4 billion in underfunded pension liabilities, including $9.4 billion in the U.S. Ford admits it will be years before it can solve the problem. GM too is grappling with the same problem, and is due to report earnings next week, when its financial position and debt strategy should become clearer.
In January, Ford’s passenger vehicle joint-venture in China, Changan Ford Mazda Automobile (CFMA), sold 18,324 Ford-brand vehicles compared to 31,904 last year. Buick sales in China were up slightly year on year to 71,056 cars. Chevrolet sold almost 55,000 vehicles.
Ford’s commercial vehicle investment in China, Jiangling Motors Corporation (JMC), sold 12,045 vehicles compared to 20,966 in January 2011.
The communist Chinese government requires local partners and transfers of technologies in order for offshore automakers to gain access to the world’s largest car market.
