The global economic crisis has had quite an effect on the bottom lines of nearly every industry, and automakers have not been immune. The recession forced "The Big Three" American automakers to make drastic cuts, including General Motors (GM) and Chrysler being bailed out by the government. Now, European automakers are being forced to make similar cuts in hopes of salvaging their companies' futures. So clearly, no automaker has a privileged position going forward. But if you're looking for an automaker in position to succeed when the economy turns around, look no further than Ford (F). Thanks to recent moves within the Chinese market, as well as some other factors, Ford could be on its way back up.
It's no secret that the Chinese market is a huge opportunity for profits. As such, many U.S. automakers have made concerted efforts to market their vehicles to the Chinese, with some companies having more success than others. China has tried to nurture its own automakers, but so far they have been unsuccessful, as American car companies are seen by the Chinese themselves as superior, according to a Chinese automaker executive. "China's indigenous cars are the lowest on the food chain," Liu Yu said. "Many consumers are biased against them." Joe Hinrichs, president of Ford's Asia-Pacific and Africa regions, echoed this sentiment, saying, "There is a belief … that international brands have more technology, in some cases better craftsmanship."
Since the Chinese have little confidence in their own automakers, American companies like Ford and GM have an enormous opportunity in front of them. While they have been selling cars in America for generations, China is still a relatively new, untapped market. As China has risen, the amount of wealthy potential automobile buyers has skyrocketed as well. New infrastructures teamed with new wealth has kept the Chinese automobile market on the rise, including an 11% increase in sales in July. It took over as the largest sales market in the world in 2009 and has not let up, with estimates for 2012 total car sales near 20 million.
Recently, Ford announced a plan to build a factory on China's coast, where most of its wealthy citizens live. This is a great move for Ford, as it had previously located its plants in the interior of the country. Most of the wealth in China resides on its east coast, as those areas were where the move toward a more capitalist-based economy first took root in the form of Special Economic Zones in the late 1980s. The $760 million facility will be Ford's fifth in the country once it is completed.
In addition to the announcement of its coastal facility, Ford also just announced it would begin pushing its Lincoln brand of cars as a luxury brand in China beginning in 2014. This represents part of Ford's strategy to become China's choice for luxury vehicles, and though it remains to be seen how successful this approach will be, it seems to be quite smart given the amount of untapped wealth that exists in China. Ford CEO Alan Mulally believes it is in a great position to capitalize on the Chinese market going forward.
"We've done enough development to revitalize the Lincoln brand in the United States, but we've really kept an eye on Chinese customers and markets while we've been doing this," Mulally told the Wall Street Journal in Beijing. "It is the perfect time to announce that we're bringing the Lincoln brand to China."
More good news for Ford comes in the recent development that its Focus model is on track to become the top selling car in the world, beating out Toyota's (TM) wildly popular Corolla. While Toyota is disputing the numbers, it certainly seems that the Focus has become a global powerhouse, which should be great news for the company going forward. The Focus, like the Corolla, is a middle-class powerhouse and as Chinese citizens move up in socioeconomic status, they might use the Focus as a bouncing off point, a sticking point or a cheap alternative. All three mean sales and a bigger Ford name in China.
And finally, though it may be unfair, Ford is without the burden of having been bailed out by the government, something that lead many to facetiously label GM as "Government Motors." Ford was able to avoid taking the government's help, which helps the company from a PR standpoint, as many are of the view that the government ought not bail out companies the way it did GM and Chrysler.
So for these reasons, I'm cautiously optimistic about the future of Ford. China's slowdown could be at its end, which should allow Ford to reap significant profits considering its recent push for supremacy among the country's automakers. Its Lincoln brand should do quite well in China, and its decision to build a plant on the eastern coast of China should pay off tremendously. If you're looking to invest in an automaker, Ford is - though speculative - a company with big upside going forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was prepared for Freedonia Freelance by one of our full-time analysts