Ford's Plan for Global Domination

By John Rosevear

Want a sign that Ford (NYSE)will be able to sustain its earnings growth for a while? I've seen several lately -- they keep showing up in my news feed, with the word "China" attached.
Ford's recent increases in U.S. market share are welcome signs for shareholders, but let's face it: The company is just winning slightly larger pieces of a fairly static pie. U.S. auto sales may be on a solid recovery trajectory but they aren't going to set new records any time soon -- much less sustain huge annual growth rates.

For that kind of market growth, you've got to look overseas -- and Ford has been doing a lot of that lately

Big strides in China

The Chinese auto market -- now the world's largest, having grown sevenfold in the last decade -- is a convoluted and fast-evolving one, with a long list of domestic Chinese companies going head-to-head with more familiar names. Volkswagen and General Motors have the largest market share among foreign companies, with domestic hybrid- and electric-car specialists BYD having similar success.

While many of the Chinese companies are bit players, with monthly sales of a few thousand or less, there are

While many of the Chinese companies are bit players, with monthly sales of a few thousand or less, there are a few heavyweights attracting major global attention and investment. Geely's recent purchase of VOLVO from Ford was a sign of size and seriousness, as was Berkshire Hathaway's (NYSE: BRK-A - News; NYSE: BRK-A News ,NYSE
BRk -B news purchase of 10% of BYD in 2008 Ford, however, has trailed far behind these leaders in China for a long time, and behind Toyota (NYSE:TM-NEWS) Honda (NYSE:HMC-News) and Nissan as well. But that's starting to change -- the first quarter of 2010 was Ford's best quarter ever in China, with sales up 84%. The actual numbers don't (yet) rival Ford's U.S. sales, but they're significant -- 153,362 vehicles were sold by Ford and its various joint ventures in China during the quarter, versus 428,596 for Ford's U.S. arm.

China's rapid growth means it's likely to represent an even bigger piece of Ford's total sales before too long -- if Ford can manage to make enough cars to keep up, that is.

Production is the gating factor

Ford's recent efforts -- and successes -- in China represent a significant shift in strategy, as the company races to catch up with the established leaders. In recent years, Ford's attention and resources have been focused on survival -- on rebuilding its core businesses in the U.S. and Europe -- and previous management teams did little to build Ford's presence in Asia. But a RETURN TO PROFITABILITY has led to a return to investment in growth -- and China, along with India and Latin America, are where CEO Alan Mulally's team sees significant opportunities for gains.

Those opportunities tie in with the company's current focus (so to speak) on smaller cars and greener-propulsion technologies -- small, efficient vehicles are what these markets demand. But because of the lack of attention in the past, Ford's Asian production capacity is constrained -- and although that's changing, as Ford has added shifts at existing plants and is constructing a third Chinese factory in Chongqing, the company is running a tight race between capacity expansion and sales growth.

As business problems go, that's a nice one to have -- but it's still a problem.