Ford China Sales Hit Overdrive

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- While the overall Chinese automotive market grew by only 2.5% in 2011, Ford (F) managed to grow its sales by 7% to 519,390 units. While Ford China sales volume is only one-fifth that of its rival GM's (GM), Ford is aiming to capture larger share of the market by introducing 15 new vehicles by 2015 and ramping up its domestic production by adding four new plants in the country. But macro-economic concerns and unfavorable government policy can upset Ford's sales ambition in the near-term.

Our price estimate of $14 for Ford's stock is around 15% above the current market price.

See our full analysis for Ford's stock.

Auto sales in China grew by only 2.5% in 2011, its slowest growth in over a decade. The most significant factor for this slim growth was phasing out of government incentives during 2011, which made cars more expensive for buyers. This decelerated auto-sales as Chinese customers are comparatively more price sensitive than their western counterparts.

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Moreover Ford's near-term sales growth can be adversely affected by high levels of benchmark one-year lending rates in China as The People's Bank of China (PBC) strives to control inflation. High levels of benchmark rates will also make auto-loans more expensive for customers which will likely further decelerate auto sales in the near-medium term.

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In the medium-to-long term we expect that as inflationary pressure in Chinese economy eases, the government will adopt monetary policies favorable for industrial growth such as through easing of benchmark rates. This should support Chinese automotive market growth and in turn expand opportunities for Ford's market share growth.