Ford is investing heavily in China, hoping to expand sales. The trend in 2012 is the opposite.
Ford China and its mandatory partners increased sales by 28% in February to 40,000 vehicles compared to February 2011 when the extended Chinese New Year holidays occurred. In January of 2012, Ford sales dropped 42% in a free fall to 30,976 vehicles compared with 53,340 in the year earlier period. This drop was attributed to the Chinese New Year, which occurred in January this year.
However, year-to-date Ford China sales at 71,000 are down from 85,000 last year, a 15% decline in the world’s largest auto market, a number somehow omitted from the official release. This is not a good trend since Ford and its Changan partners opened a second vehicle assembly plant in Chongqing last month, bringing its passenger vehicle production capacity to 600,000 units annually with four plants.
Last year Ford sold 519,000 vehicles in China, where it badly lags well-established competitors such as General Motors or Volkswagen group, which outsell Ford by a 5:1 or 4:1 ratio respectively. In the first two months of 2012, GM and its joint ventures sold a record 487,208 cars and trucks in China, an increase of 8% from the same period last year. YTD Volkswagen Group delivered 397,400 vehicles in China, a 13% gain from 2011.
The new Focus, built at Changan 2 is the first of 15 new or revised models due from Ford by 2015. If the downward sales trend continues, Ford will be in financial trouble because three additional new manufacturing facilities are scheduled to open by the end of 2013.
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) The open question is whether this is the beginning of a prolonged downturn in the Chinese economy that some western economists are predicting because of Chinese government policies to slow growth.
Another threat to Ford’s financial health are promises 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 long-standing problem.
