China: Ford Motor Co..docx
Gate China 2014 Ford Motor Company Grant Boyadjian, Thomas Rosenberger Business Overview The Ford Motor Company (also known as simply Ford) is an American multinational automaker headquartered in Dearborn, Michigan, a suburb of Detroit. It was founded by Henry Ford and incorporated on June 16, 1903. The company sells automobiles and commercial vehicles under the Ford brand and most luxury cars under the Lincoln brand. Ford is the second-largest U.S.-based automaker and the fifth-largest in the world based on 2010 vehicle sales. Ford owns a 49% stake in Jiagling of China. Ford also has several joint-ventures in China (Changan Ford Mazda, Ford Lio Ho, JMC): ● Changan Ford Automobile Corporation, Ltd. (“CAF”) — a 50/50 joint venture between Ford and Chongqing Changan Automobile Co., Ltd. (“Changan”). CAF currently operates two assembly plants in China, where it produces and distributes an expanding variety of Ford passenger vehicle models. In 2013, to support growth in the region, CAF completed construction of an engine plant in Chongqing. CAF is constructing two additional assembly plants in Chongqing and Hangzhou, and a transmission plant in Chongqing. ● JMC — a publicly-traded company in China with Ford (32% shareholder) and Jiangling Holdings, Ltd. (41% shareholder) as its controlling shareholders. Jiangling Holdings, Ltd. is a 50/50 joint venture between Changan and Jiangling Motors Company Group. The public investors in JMC own 27% of its total outstanding shares. JMC also plans to launch a new engine plant in 2015. Industry Sales Volume (in millions of units) [Source: Ford 10-K, 2013] 2009
2010
2011
2012
2013
CAGR
United States
10.6
11.8
13.0
14.8
15.9
10.7%
China
14.0
18.2
18.5
19.0
22.2
12.2%
Fun Facts: ● Ford plans to open 4 additional plants in China in 2013 ● Excess capacity: “In China, the auto industry also witnessed excess capacity at 31% of production in 2013, as manufacturers competed to capitalize on China’s future market potential.” ● Of 11,000 Ford dealerships worldwide, 600 are located in China (100 added in 2013). ● Ford is essentially selling at capacity. The plant we’re visiting in Chongqing is brand new, opened this year, and will add 250,000 units of capacity. Another 250K of capacity will be added next year from an assembly plant in Hangzhou. ● Ford grew sales by 49% in 2013, while the total market grew 14%. ● The 2 market leaders that Ford is challenging for dominance are General Motors and Volkswagen ● Though they don’t drive Ford vehicles, clearly Thomas and Grant are the two most dapper gentlemen on this trip. ● Ford formed its first passenger-vehicle joint venture in China in 2001, six years behind GM and more than a decade after VW. ● Ford has spent as of 2013 $4.9 billion to expand its lineup and double production capacity in China to 600,000 vehicles.
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Ford’s largest-ever factory complex is located in the southwestern city of Chongqing. Ford had 2.5 percent of the Chinese market in 2013, while VW controlled 14.5 percent and GM had 15.6 percent, according to consultant LMC Automotive. GM outsells Ford in China by more than six-to-one. Ford will begin selling Lincoln high-end luxury cars later this year ○ The car’s smell will be altered as the Chinese don’t like the “new car smell” ○ The back seats will have extra cushion in order to meet Chinese expectations for back seat luxury ○ All dealerships will be equipped with waterfalls Ford China recently sold over 100K units in a month for first time ever
Ford Motor Company, 2013 Financials ● Revenues: $147 B ● Net Income: $7,148 M ● Market Cap: $63.10 B ● Price per Share: $16.00 ● Employees: 181,000 ● #Locations in China: 5 plants (+several more planned) SWOT (from MarketLine) Strengths ● ● ● ●
Intense focus on sustainability and fuel efficient technologies Robust research and development capabilities Ford brand perceived as luxury Strong sales of current model line-up
Opportunities ● ●
● ●
Recovery of automotive market in the US Shift in luxury consumer trends towards customization and away from perceived brand (BMW, Audi) Strong hybrid crossover market Strong sales trajectory (49% growth in 2013) and 57% increase in Q1 2014
Weaknesses ● ●
Late start, playing catch up to GM and Volkswagen Constrained production capacity - currently maxed out
Threats ● ● ● ●
Intense competition and pricing pressure Currency fluctuations and trade policy risks for the South American operations Established GM and Volkswagen have infrastructure to engage in price war Ultra competitive luxury market
Company Visit Questions 1.
We read recently that the Lincoln rollout will include water fountains at the dealerships and altered smell since Chinese consumers don’t like the new car smell. Can you speak to other things being done to customize your product offering to the Chinese market?
2.
The compact Focus is Ford's main offering in China, representing more than half of its passenger vehicle sales last year in 2013. How do you plan to continue growing market share as your current markets reach saturation points from the Focus?
3.
CAF (Ford’s joint venture) is investing $600M to build Chongqing 3 plant, which will bring total production in the region to 870,000 per year. What kind of demand forecasts did you use to justify this investment? How do you plan on hedging shifts in demand?
4.
The new trend in China is SUV’s and crossover vehicles. Do you think the car industry mirrors trends from a decade ago in the US/EU?
5.
How do you define your target customer segments? Do they differ by product line? How do they differ from those in the US?
6.
Can you speak to us about the benefits and challenges of operating in a joint venture in China?
7.
What is driving the rapid growth in China, and how does this help dictate your strategy in the region?
8.
What’s the best place to grab lunch around here?
2010
2011
2012
2013
CAGR
United States
10.6
11.8
13.0
14.8
15.9
10.7%
China
14.0
18.2
18.5
19.0
22.2
12.2%
Fun Facts: ● Ford plans to open 4 additional plants in China in 2013 ● Excess capacity: “In China, the auto industry also witnessed excess capacity at 31% of production in 2013, as manufacturers competed to capitalize on China’s future market potential.” ● Of 11,000 Ford dealerships worldwide, 600 are located in China (100 added in 2013). ● Ford is essentially selling at capacity. The plant we’re visiting in Chongqing is brand new, opened this year, and will add 250,000 units of capacity. Another 250K of capacity will be added next year from an assembly plant in Hangzhou. ● Ford grew sales by 49% in 2013, while the total market grew 14%. ● The 2 market leaders that Ford is challenging for dominance are General Motors and Volkswagen ● Though they don’t drive Ford vehicles, clearly Thomas and Grant are the two most dapper gentlemen on this trip. ● Ford formed its first passenger-vehicle joint venture in China in 2001, six years behind GM and more than a decade after VW. ● Ford has spent as of 2013 $4.9 billion to expand its lineup and double production capacity in China to 600,000 vehicles.
● ● ● ●
●
Ford’s largest-ever factory complex is located in the southwestern city of Chongqing. Ford had 2.5 percent of the Chinese market in 2013, while VW controlled 14.5 percent and GM had 15.6 percent, according to consultant LMC Automotive. GM outsells Ford in China by more than six-to-one. Ford will begin selling Lincoln high-end luxury cars later this year ○ The car’s smell will be altered as the Chinese don’t like the “new car smell” ○ The back seats will have extra cushion in order to meet Chinese expectations for back seat luxury ○ All dealerships will be equipped with waterfalls Ford China recently sold over 100K units in a month for first time ever
Ford Motor Company, 2013 Financials ● Revenues: $147 B ● Net Income: $7,148 M ● Market Cap: $63.10 B ● Price per Share: $16.00 ● Employees: 181,000 ● #Locations in China: 5 plants (+several more planned) SWOT (from MarketLine) Strengths ● ● ● ●
Intense focus on sustainability and fuel efficient technologies Robust research and development capabilities Ford brand perceived as luxury Strong sales of current model line-up
Opportunities ● ●
● ●
Recovery of automotive market in the US Shift in luxury consumer trends towards customization and away from perceived brand (BMW, Audi) Strong hybrid crossover market Strong sales trajectory (49% growth in 2013) and 57% increase in Q1 2014
Weaknesses ● ●
Late start, playing catch up to GM and Volkswagen Constrained production capacity - currently maxed out
Threats ● ● ● ●
Intense competition and pricing pressure Currency fluctuations and trade policy risks for the South American operations Established GM and Volkswagen have infrastructure to engage in price war Ultra competitive luxury market
Company Visit Questions 1.
We read recently that the Lincoln rollout will include water fountains at the dealerships and altered smell since Chinese consumers don’t like the new car smell. Can you speak to other things being done to customize your product offering to the Chinese market?
2.
The compact Focus is Ford's main offering in China, representing more than half of its passenger vehicle sales last year in 2013. How do you plan to continue growing market share as your current markets reach saturation points from the Focus?
3.
CAF (Ford’s joint venture) is investing $600M to build Chongqing 3 plant, which will bring total production in the region to 870,000 per year. What kind of demand forecasts did you use to justify this investment? How do you plan on hedging shifts in demand?
4.
The new trend in China is SUV’s and crossover vehicles. Do you think the car industry mirrors trends from a decade ago in the US/EU?
5.
How do you define your target customer segments? Do they differ by product line? How do they differ from those in the US?
6.
Can you speak to us about the benefits and challenges of operating in a joint venture in China?
7.
What is driving the rapid growth in China, and how does this help dictate your strategy in the region?
8.
What’s the best place to grab lunch around here?
