The global automobile industry is expected to grow by 39% by 2017 with the U.S. and China contributing 50% to the aggregate demand. The projected increase in industry sales is around 6.25%, which equals to 85 million units. The demand for automobiles is backed by an increase in the world population with the Asian economies playing a pivotal role - it is for this reason that Ford (F) has invested heavily in the region. However, Ford is not the only automobile giant eyeing the opportunity and it faces tough competition from General Motors (GM) and Volkswagen.
In 2012, automobile sales for the Asia Pacific and Africa increased by 19% amounting to $10 billion and the operating margin also improved. The market share increased to 2.8% while the revenue share was around 7.4% of total sales. Overall, revenues for Ford showed a slight decrease of 1.47%, mainly due to the decline in sales from Europe. The company incurred a net loss of $77 million. However, last quarter profits had a mitigating effect on losses. Management expects revenues to grow at an increasing rate, achieving break-even by the end of this year. The statement can be authenticated by first quarter earnings of Asia Pacific amounting to $6 million, showing an increase of 106%. Operating margin totaled 0.2% after a dip of -4.2% for the same quarter.
In the last quarter of 2012, Ford realized unprecedented returns from the Asia Pacific and Africa region. The company has a presence in 11 markets in this region with China presenting itself as the most lucrative investment. The recent quarter results revealed China's market share amounting to 3.6%, an increase of 12.5% in one year.
Signs of economic recovery can be seen in Asia and Africa driven by the recovery in China and India. The rising role of China in the growth of Ford has attracted a lot of investment in this demand-driven economy. Sales grew by a sheer 21% while the industry average equaled 4% in the last year. The expansion plans in this region began in 2006 and the company will continue to increase its presence by introducing 15 new models by 2015. Some of the planned models such as the Kuga sports utility vehicle, the EcoSport compact SUV, the Explorer large SUV and the Mondeo mid-size sedan will be made available this year.
Capital expenditure for the company grew by 27.8% in 2012. Furthermore, 5 new manufacturing facilities will be constructed to facilitate expansion in the brand lines. The growth in revenues is expected to be 7.5% for the next five years. The strategy employed by Ford is one of building a volume portfolio focusing on building small cars. Also, it plans to capitalize on its global leverage and brand name to boost revenues.
Ford also relies on other Asian markets to expand its growth portfolio such as Thailand, Myanmar and India. The company will be the first company to open its warehouses and showrooms in Myanmar. The first showroom is expected to open in Yangon with a local conglomerate, Capital Diamond Star. Furthermore, it will be the Asian economies that are more willing to adopt efficient and low-emission technology, thus providing opportunities for Ford to increase production of EcoBoost, hybrid and next-generation diesels.
Ford is optimistic about the coming years, relying on its pipeline projects in two of the biggest economies in the world, namely the U.S. and China. However, these projections are contingent upon a recovering global economy. One of the biggest threats experienced by Ford in Asia is the presence of General Motors and Volkswagen. Local players given their competitive pricing also pose a threat to the company. Furthermore, China has recently become more open to trade - a change in its foreign policy can prove to be detrimental to the future plans of the company.
All in all, the Asian coast looks clear to this automobile giant. Backed by a strong demand for automobiles coupled with its diverse expansion plans, the company is set to exploit the emerging markets and use it as a cushion against the losses experienced in the European region.