On Tuesday, the president of Ford (NYSE:F) Asia and Pacific, Dave Schoch, gave a presentation at Citibank's US and European Industrials Conference. The presentation mentioned several opportunities and related developments in front of Ford in Asia and Pacific. Mr. Schoch drew a nice picture where Ford's future in the continent looks pretty bright, full of opportunities and potential.
Ford Asia is no exception to the company's "One Ford" plan implemented by the CEO Alan Mulally when he took the helm of the company in 2006. Ford has either refreshed, or in the process of refreshing many of its products in the continent in order to address the needs, preferences and tastes of the consumers in Asia.
The Rapidly Growing Asian Auto Industry
The global auto industry grew from 58 million units to 82 million units between 2002 and 2012. This number is expected to grow further towards 109 million units by the end of the decade. Much of the growth has been and will continue to be accounted by Asia, Pacific and Africa regions. In 2012, this region accounted for 13 million units, which increased to 34 million units in 2012 and it is expected to rise to 50 million units by the end of the decade, with China accounting for 32 million of those units. To put these numbers into perspective, Asia, Pacific and Africa accounted for 23% of the global car market in 2002, which rose to 41% in 2012 and it is expected to rise to 46% in 2020. While China accounted for only 3% of the global volume in 2002, it currently accounts for 24% of the global volume and it will account for nearly 30% by the end of the decade. Obviously, this is where most of the growth will come from. In fact, Mr. Schoch said that China would account for 60% of Ford's growth by the end of the decade, which is massive for Ford.
The number of people in China, India, Thailand, Indonesia, Philippines and Vietnam (the big six in Asia) who are able to afford purchasing a vehicle will increase by 2 billion between now and the end of the decade. In China, the number of potential buyers will rise from 715 million to 1.15 billion, in India, the number is expected to rise from 165 million to 520 million and in the other four countries, the number of potential buyers will rise from 100 million to 300 million. Keep in mind that just because someone is able to buy a car doesn't mean he or she will buy a vehicle, and it is estimated that in any given year, 2% of the potential buyers will actually buy a new vehicle.
Ford Is Taking Action To Address The Need
According to the presentation, Ford is well prepared for this rapidly growing market. While Ford entered the Asian market much later than other companies such as GM (NYSE:GM), BMW or Volkswagen did, the company is working hard to catch up to the competition. Ford is actively and aggressively investing its profits in Asia towards further growth in the continent. The company is not only building new factories and manufacturing capacity, but it is also building an ever growing network of dealers and service stations in order to sell and service the cars it builds. In 2011, Ford's manufacturing capacity in Asia, Pacific and Africa consisted of 1.5 million units, and this number rose to 1.8 million units in 2012 and it will rise to 2.1 million units by the end of this year. By 2015, Ford will be able to manufacture and distribute 2.9 million vehicles in this region, which will help fuel the company's growth. Between 2010 and 2015, Ford is more than doubling the number of dealerships and service centers it has in China, India and the rest of Asia in order to take advantage of a rapidly growing market.
Between 2011 and 2015, Ford is increasing the number of manufacturing plants in the region from 14 to 23 (the company is building 10 plants but one plant was closed in 2012, which brings the net gain to 9 plants). Ford is working on establishing India as a hub for production and distribution of cheaper cars to the developing market. One of the most popular Ford brands outside of North America and Western Europe continues to be the company's compact car Fiesta. This car is particularly popular because it is highly affordable and fuel-efficient.
In the first half of the year, Ford sold 599,000 vehicles in Asia, generating $5.6 billion in revenues. This is up from the 467,000 vehicles sold and $4.6 billion generated in the first half of 2012. Ford's operating margin in Asia was 3.2% compared to -3.6% obtained in the same period last year. The company's pre-tax income was $183 million, up from a loss of $161 million in the previous year. Basically, Ford Asia showed a lot of improvements in the first half of 2013 compared to the first half of 2012. During this period, Ford's market share in the continent rose from 2.6% to 3.6%.
One challenge Ford has in Asia is the Lincoln brand. Many people think that the Lincoln brand will not gain as much traction as the company's Ford brand vehicles. Currently, it is too early to talk about how the Lincoln brand will perform in Asia, but I'm sure that Ford will do its best to gain the most out of it.
In conclusion, Ford Asia has a lot of opportunities in the medium and long term and the company is well positioned to address the ever growing need in Asia. Ford is expecting to get most of its future growth from the continent and its investments in Asia are likely to pay handsomely for the company.