Ford Expands Dealership in China - Analyst Blog

Ford Motor Co. (F) has added 40 new dealerships in China as a part of its major expansion plan to strengthen its foothold in the fast-growing market. Further, the automaker plans to bring in 66 new dealerships by the end of the year, raising its total dealership to 340 in the country.

All the dealerships will be added in the tier-two and tier-three cities in China including Nanning, Shijazhuang, Harbin and Anyang, each with a population of over one million. As the tier one cities become saturated, the company believes that the cities in the following tiers would provide further potential for growth with their overall improvement in a larger sphere encompassing education, health care and real estate.

The Chinese auto industry being the apple of Beijing's eye is being further boosted by government incentives that coax car owners to shift to more environment-friendly and fuel-efficient cars and minivans. While the domestic automakers (especially small car manufacturers) received most of the incentives, foreign automakers including Ford and General Motors (GM), benefited from them as well.

According to the China Passenger Car Association, passenger car sales soared 36% to 11.1 million vehicles during the first 10 months of the year. In contrast, Ford's sales in China surged 39% to 468,754 vehicles during the same period.

Sales in China are expected to grow by 33% to 18 million vehicles for 2010 from less than 13.5 million vehicles in 2009 and by 10%–15% for 2011.

Ford has been pursuing a major expansion plan in the emerging countries, including Argentina, Brazil, China, India and Thailand. Through the expansion plan, the automaker aims to tap the growing market potential in the countries, especially those in Asia.

Since last year, Ford has invested $510 million in China and $500 million in India as part of its expansion plan. Recently, Ford and Japan's Mazda Motor announced their plan to invest $350 million in their Auto Alliance joint venture plant in Rayong, Thailand. This comes on top of a $450 million investment for a new plant at the same location made in June this year.

In the first 10 months of the year, Ford's sales in the Asian-Pacific and African regions shot up 39% to 731,724 vehicles. Ford anticipates 70% of its sales growth to come from Asia Pacific and Africa region in the next 10 years, mostly from China and India. Industry sales in the region are expected to grow from 16 million units in 2009 to 35 million units by 2018. 

Ford, a Zacks #3 Rank (Hold) stock,showed an $1.04 billion rise in profit to $1.91 billion or 48 cents per share (before special items) in the third quarter of the year from $871 million or 26 cents per share (before special items) in the same quarter a year-ago. The profits surpassed the Zacks Consensus Estimate by 10 cents per share during the quarter.

The improvement in profit was fueled by the strength of Ford's new products, consistent strong performance at Ford Credit as well as a recovery in the North American automotive market.

Total revenue slipped 4.3% to $29 billion, including revenues generated from Volvo cars in 2009. This compared with the Zacks Consensus Estimate of $28.16 billion. However, excluding revenues from Volvo, sales improved $1.7 billion or 5.6% from the third quarter of 2009.

 
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