Good luck with that, Ford.
Ford Motor (F) CEO Alan Mulally has signaled that the company will go hard after customers in the world’s developing economies with its new platforms for small and mid-sized cars. A new car built on the re-launched Fiesta platform and branded as the Figo will be produced in India and sell for under $8,000, for example.
Ford doesn’t have much of a presence in India. The company sold just 40,000 cars there in 2009. The expanded Chennai, India plant that will make the Figo will have the capacity to make 200,000 cars annually.
Selling cars globally rather than concentrating on the North American market is essential for any long-lasting revival for Ford and General Motors (GM).
But it’s not clear how much money any auto company is going to make in the car business in the years ahead.
To sell in developing markets, prices already have to be low—40% of Chinese car buys and 70% of Indian car buyers purchase vehicles selling for less than $7,500, according to Ford.
And prices are likely to keep dropping since the global auto industry is awash in excess capacity that even a global economic slowdown has done little to diminish. The problem is that most governments—from Washington to Kuala Lumpur—have decided to prop up local car makers.
“I hope,” Mulally said at the Detroit auto show, “we’re at a point where the industry understands it’s not about market share, it’s about profitable growth.”
I wouldn’t hold my breath waiting for that one.
Brucegolden-
Ford can survive in the Chinese market, but it will have to cut costs with the up and coming local market. BYD and Geely are vertically integrated. They understand the Chinese market. Volkswagen also understands the market. Joint ventures is the way to go. Volkswagen works with FAW, GM works with SGM, SIAC and other companies. This type of arrangement helps meet those type of costs, but Geely and BYD have more growth potential in the Chinese domestic market than a Ford or GM. Chery is an SOE and I think is still lost in not being able to launch programs on time and always give their suppliers unrealistic volumes. My money would be on BYD (BYDDF) or Geely (GELYF). BYD has the upper hand with its electrical battery technology and Warren Buffet as their partner.
Amtrend – you have not been to China – virtually all of the flat land where the populations is populated and/or in agriculture. The unpopulated areas are unpopulated for good reasons, no water, difficult terrain, ….
also very very small % of the population actually has sufficient earnings to afford even the low cost automobiles available or the fuel and maintenance required – Chinese do have remarkable good mass transist – even out in the boonies.
Presently the biggest cost cutting strategy would be to build the cars in China. Seems like lower costs would produce the same profits as any economic model. Mass transit only works in densly populated areas. Autos and trucks would allow the Chinese population to spread to the huge areas that are basically unpopulated. I guess you have to be as old as I to remember all the U.S. towns that had more cows than people.
I would advise the Chinese to be careful about rapid expansion but I’m sure they are not listening. Invest in China until their economic inflation eats them up. Keep a close eye. Remember what happened in the USA and Japan.
so I read ‘tween the lines that you believe it is really unlikely for Ford to compete profitably in that market and if can’t compete in that market, will not be a survivor?
We have roll over requirements for cars. Now when your car rolls over your curtain airbag needs to remain inflated for up to four seconds. We have what is called dual stage airbags (only in America). The airbag should be able to go off when you are resting against the steering wheel. Even the cigerette lighter has to stop functioning so the car doesn’t burn down if it gets stuck in the charge position. Capacity is one thing to consider. Product design is another. Just because you have access capacity for a particular cigerette lighter, airbag, or any component does not mean it can be used in emerging markets. The cost of safety and design of these componets could completely make them non competitive. To compete in emerging markets, these companies must throw out the book on safety written in the US and use cheaper less safe components, or expect these markets to pay a premium for their products.
I don’t follow Ford but have read reports that its recent big run up makes it currently overvalued. The article recommended selling out of the money puts on the stock.
When Ford refused government bailout and focused on hybrid technology as well as other cost-cutting moves and more energy efficient cars, I bought them around $8 a few month back. No regrets. So, there are other factors to consider besides loss of sales in India!!!
You can “hope” just as Mr. Mullaly does that mass transit will become the norm. Forget it. Americans want their cars. Besides what funding source would you look to for this wonderful mass transit. Let me guess- Oh yeah- the government. Too bad it’s broke- just like California,where I bet you live.
Anyhow, I am from Detroit and I can tell you the people here are more than unhappy knowing that the government and the unions own GM, now known as Government Motors. Fiat is a disaster, too. That company is in worse shape than Chrysler ever was. Everyone in this state is supporting Ford and they will be showing that support with purchases. It is the ONLY American automobile company. I have no idea if they can make it in India but they had enough sense to tell Obama and Company to take a hike with bailout money, so I would not want to bet against the Ford brand.
I already had some puts on F. Now I see why Jim Chanos implied he was short Ford and Fiat. The
answer is always the same in investing-
look at supply and demand…..
Just when I thought you can’t beat Tata’s $2K Nano, now I heard some company is trying to make $1800 car in India. How can western or even Asian companies survive on that kind of price?
Rushing into China’s car market is one thing, trying to do the same in India is another thing. The world is full of people who think India and China are about same. In fact, the two could not be more different. China always has much better roads than India. To have cars, you need roads. India doesn’t have much roads to begin with and doesn’t have much land to end with either. India may have 1.1 billion people, but very small land. India is a extremely over-rated country. I see India as the last among major developing countries.
I concur with doydum’s question.
Also look at RBA. It has been down after down grades by several analysts but today it is up. Is this just sector rotation out of riskier sectors, a “dead cat bounce” or the start of something new. Thanks.
tostoryteller: Even Toyota can’t make money now. The compay is awash in red ink.
“I hope,” Mulally said at the Detroit auto show, “we’re at a point where the industry understands it’s not about market share, it’s about profitable growth.”
And I hope that we’re at a point where society understands that we have neither the resources nor the space for everyone in the world to fill the streets with autos. There are far too many industries with business models based on increasingly obsolete posibilities. What about promoting rapid and efficient short link transportation such as high speed trains?
Off-topic question:
What’s with Ormat (ORA) today? It’s up almost 3%. Thanks.
Mulally’s wish for a rationale industry where companies focus on profitable growth – well, we can all wish! Toyota is one of the best auto makers in the world with superb manufacturing skills aimed at satisfying just in time customer needs. However, it’s also a company rooted in principles, one of which is to get share first and foremost…the rest will take care of itself…and so goes their mantra. Toyota’s entry into Brazil, as compared to GM, is a textbook case of building connections to customers on the ground in places where they’ll actually buy cars.
However, I agree with Jim’s point about the entire industry – it’s awash in capacity with growth tied to markets where prices are rock bottom. Not a business I’d want to be in.