Ford bets on Mustang to power up China profits
Ford Motor Co is betting on one of its most distinctively American models, the Mustang muscle car, to boost the company’s sales and profits in China.
Ford began selling the Mustang in China in early 2015, and it is a niche vehicle, selling at a rate of about 3,000 cars a year. Still, that makes the Mustang, which starts at 399,800 yuan ($57,670) the top-seller in a sporty car segment against more expensive vehicles like the Audi TT and the Nissan Skyline GT-R. Mustang last year outsold the Chevrolet Camaro from General Motors Co by nearly 15 to one.
With styling that harks back to 1960s Detroit muscle cars, the Mustang stands out in a Ford lineup dominated by practical sedans and sport utility vehicles. Ford’s sales in China grew by 50 percent in 2013 and 20 percent in 2014, but in 2015 the pace slowed to 3 percent. In 2016, Ford added the Lincoln luxury brand to its China lineup and expanded sales by 14 percent.
Industry analysts said Ford’s China market profits and profitability were relatively healthy, with operating margins for Ford’s joint ventures with Chongqing Changan Automobile Co Ltd (000625.SZ) and Jiangling Motors Corp (JMC) (000550.SZ) in the 14-16 percent range over the past three years.
But competition in the world’s largest car market continues to heat up as global automakers, from GM to Volkswagen AG to Toyota Motor Corp, add more models to product ranges. Indigenous Chinese automakers, too, are launching models that can compete more head-on with global carmakers’ products.
Ford officials said the company’s China operations did not have specific profit objectives but were trying to keep margins in their current “healthy” range.
“In terms of having a pricing power on your brand, you want people to be choosing your brand for rational reasons, but if you could also (combine) that with emotional reasons, that’s when you get some pricing power,” Peter Fleet, Ford’s executive in charge of sales and marketing for the Asia-Pacific region told Reuters.
The Mustang and the F-150 Raptor, a high performance version of Ford’s F-150 large pickup truck, provide the emotion, he said.
The formula works for Dong Zirui, a 27-year-old small rental car business owner in the northeastern China city of Tangshan who bought a Mustang late last year.
“The Mustang is a rear-wheel-drive car,” said Dong who decided to buy the Mustang when he spotted photos of it online. “It’s a savage when you try some drifting stunts with the car.” But Dong said he can fit his wife and young son in the car when he needs to.
Dealers say the Mustang brings in two types of buyers to Ford stores: younger drivers, mostly younger than 30 years of age, from upper-middle class families, who have recently finished their studies and have financial support from their parents, as well as drivers in their 30s and 40s who have work or life experience outside China.
“Ford has a cleaner sheet in China, so there might be an opening for those halo cars to help the company improve its brand image,” said James Chao, Asia-Pacific chief for consulting and research firm IHS Markit Automotive, referring to China being a relatively young market.
As Chinese consumers typically make car purchasing decisions based on word-of-mouth advice from their family and friends, Mustang buyers can be influential opinion leaders for Ford.
Guo Xin, a 30-year-old rally car racer and stunt driver for films and commercials in Beijing, said he liked the Mustang so much that in 2011 he helped form a Mustang Club of China which now has some 2,000 members.
“Growing up I used to see the Mustang in movies,” said Guo who drives a 2006 Mustang and also owns a 1966 Mustang.
Guo’s classic Mustang would turn heads even in Detroit. But he cannot take it out on public roads. Used cars brought in from outside China cannot be registered in the country.