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How Far Can Ford Go in China?

Stocks in this article: F

SHANGHAI ( TheStreet) -- Ford (F) got into China late and seemed to stake out wrong regions of the sprawling country, locating far from the surging coastal economies of Beijing and Shanghai.

But now the automaker is benefitting from rapid growth in lower central China, where Ford has a joint venture with Chongqing Changan Automobile. The business is based in Chongqing, a large city that borders Sichuan province. Together, Chongqing and Sichuan have about 110 million people, more than any Chinese province.

Ford said last week that it expects to increase its fourth-quarter market share in China to 5%, double its level at the end of 2011. The company has said it expects to have a 6% share by 2015.

"There's been a lot of investment from the central government into the inland regions, in terms of infrastructure investment and power generation," said Tim Dunne, director of global automotive operations for J.D. Power and Associates. "That helps Ford's growth. Ford is well-positioned, close to where the new buyers are coming from."

Dunne said Ford's expectation for 5% growth is realistic, but he cautioned that looking ahead Ford may not be able to grow so quickly. At 2.5%, he said, Ford "was lagging behind where they should have been.

"But now, as a global brand, they are close to where they should be and, as in any endeavor, the further you go, the more difficult the incremental increases become," he said.

Ford is benefitting this year from fallbacks by Japanese automakers, perhaps as a result of recent flare-ups in a territorial dispute between China and Japan. During the first eight months of 2013, according to J.D. Power, Nissan (NSANY) China passenger vehicle sales fell 17%, Toyota (TM) sales fell 8% and Honda (HMC) sales fell 3%, according to J.D. Power figures. During the same period, Ford passenger vehicle sales rose 73%.

It would be unwise to assume the Japanese will not recover as nationalist hostility diminishes, Dunne said. "Chinese buyers are shrewd," he said. "They will look carefully at what is the best investment for them personally."

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