It is no surprise that Ford (F) is doing well and had an excellent quarter with sales above 18%. For those of you who enjoy investing partially in automakers this is a company you should take a look at. Not only are they doing good in the United States as the economy continues to grow, but a revenue anchor is developing in China as well. Auto sales are doing well and the explosion in SUV sales will be of great advantage to Ford.
Ford likes what it sees in China and is slowly making deeper investments and joint ventures in the country. Recently it raised its stake in a Chinese light vehicle company called Jiangling Motors to 31.5% from 30% and it intends to raise it to 32% by the end of the year. This is the maximum limit that securities regulators will allow within a one-year period. Why is Ford so interested in the country? Last month the company posted an eye-popping 65% rise in sales and the first quarter of this year revealed sales up 54%.
Ford isn't the only company that has been doing well in China. General Motors (GM) saw a 12.6% increase from the previous year and it was the second highest monthly sales the company has ever recorded in China with its joint venture partner. Volkswagen also did well reporting a 21% increase in the first quarter of this year over last year's quarter. Just to show you how politics are involved though there is political conflict between Beijing and Tokyo over an island dispute in the East China Sea. It just so happens Toyota saw its sales fall by 17.8% - I wonder why! Just look at these growth numbers:
- Passenger vehicle (cars, multipurpose and sport- utility vehicles) sales rose 13.3%
- January through February the increase was 19.5%
- Passenger vehicle sales grew 17.2% to 4.42 million units in the first quarter of the year
Ford knows this is where the money is. It is aggressively expanding, hoping to triple the choices of cars that Chinese people can buy. It plans on introducing 15 models by 2015 while it presently only sells seven. It plans on building the new plants in the country, investing up to $6 billion annually and hiring 1,200 new employees by 2015. There is a rising demand for small cars, especially in China and India. Taking this into account the company has forecast that 55% of its revenue or total sales will be from small cars by 2020. This is a 7% increase. It's growth plans are very aggressive and it believes global sales will expand by 50% to 8 million vehicles by 2015.
As car sales continue to increase in China, automakers have identified buyers gravitating toward SUVs. Global and local automakers are trying to cash in on the recent popularity of these vehicles. Even though this may be a boon for automakers, it is not something that sits well with the government, which is encouraging the development and sales of smaller vehicles as well as electric cars because of the smog problem and the need for importing oil for bigger vehicles. But SUVs have an appeal to the Chinese people because they appear safer and in some Chinese cities driving can be chaotic. The safety appeal is growing for prosperous Chinese auto drivers. The smaller more dangerous electric cars are having a hard time finding buyers compared to these.
Native automakers are especially interested in SUVs because they consist of fatter profits which translate into a financial life vest to the Chinese auto industry that continues to be challenged as global brands from the United States and other places continue to make inroads into the markets of smaller cars that the Chinese are used to building. Everybody wants to make money so everybody wants to target SUVs - it's that simple. But don't think for a minute that big automakers would just ignore the government's encouragement of lowering auto emissions. Automakers are putting smaller engines in the SUVs in response to the government's tax on engine size.
SUV sales rose 20% compared to 8% growth for the entire auto market and they also make up almost 1/5 of all vehicles sold. Some analysts in China believe that they could see SUV overall sales rise as high as 25% of the entire market in the near future. Just to give you a perspective on how lucrative this is for the country, SUV sales in the United States account for about 12.5% of all auto sales. Ford Motor Co. plans to manufacture two of its four SUVs, the EcoSport and the Kuga, in the southwestern city of Chongqing. Its Edge SUV will be imported from Canada and the Explorer from the United States.
How long this "SUV craze" continues without government intervention is yet to be seen. China's reliance on importing oil and gas is seen as a strategic weakness and the government also wants to clean up the cities that are so smog filled. The government really wants electric cars on the road hoping to produce and sell up to 5 million electric cars by the year 2020. Electric vehicles have not panned out as they thought they would just like they haven't here in America so progress has been slow. And they are going to have to battle the mindset of Chinese consumers who see SUVs as protection against the chaotic traffic of the cities. The average family consumer wants to keep their family safe and if they can buy an SUV they're doing the best they can, at least this is the mindset.
Ford will continue to be a good investment because America is doing well and China is going to continue to grow in double digits. The company will take advantage of the SUV craze over there as well as sell other cars, but the size of the population and the wealth of the citizens continue to expand and the market continues to be lucrative for the company. Ford should continue to do well.