Ford Motor Company is getting ready to export the Mustang to China. It wants to capitalize on the car's iconic image to build its brand recognition. But while sending this one U.S. automobile to the world's most populous nation is exciting news, it doesn't even scratch the surface of the opportunity available in a country where auto sales have grown 23% a year for more than a decade.
Slowing down is not the same as stoppingThe big news about China recently has been the slowdown in its gross domestic productgrowth rate. For example, the BBC ran a headline recently proclaiming, "China's growth slows to weakest in 24 years." Other websites and newspapers discussed how that slowdown would impact other countries and industries, and said that China would have to bank on consumer spending if it wants to counter thispredicament.
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If you didn't know any better, you'd think China was on the verge of falling into a recession. But the truth is, China's GDP growth inched down to just 7.3%. Yes, that was below the targeted figure of 7.5%, but it's hardly a number that should be eliciting fear and panic in the streets.
While many companies around the world have relied on accelerating growth in China to increase demand for their products, the current slowdown doesn't change the continued industrialization and economic advances taking place in the country. Economic development may happen more slowly, but it's still happening, and certain goods will continue to be in demand -- for example, automobiles.
Vast potentialThis is why Ford sending the Mustang to China is so interesting, since it has more to do with marketing than auto sales.To understand why that is, however, you have to look at auto penetration.
According to the U.S. Energy Information Administration, in the United States there are about 800 vehicles per 1,000 people. In Beijing, one of the more affluent cities in China, that number was around 183 per 1,000 (as of the EIA's 2011 statistics). Even if that number is higher today, it's still likely to be far from the U.S. penetration rate, or even Europe's rate of around 600 vehicles per 1,000 people.
And that's just Beijing: Other areas of the country aren't nearly as far along on the car ownership front. For example, the city of Chongqing had just 28 vehicles per thousand residents.
So China's economy is still growing, and countries further along in that process have much higher auto penetration rates. As long as China keeps moving up the socioeconomic ladder, more cars are likely to be needed as richer residents want better transportation options. This isn't news to the automakers, however.In fact, Ford's wholesale vehicle sales grew 10% year over year in the third quarter of 2014 in China, despite the GDP slowdown. The automaker's market share in the country increased 0.4 percentage points to a record of 4.7%. For comparison, Ford's U.S. auto volume fell 8% year over year in the third quarter and its market share fell 0.8 percentage points to 14.1%.
Other automakers are working just as hard to gain market share and expand in the giant nation. But Ford's effort to take a car that's been sold almost exclusively in America to the Chinese market can help to differentiate the automaker and enhance its brand image. It brings a level of "sex appeal" to a Ford showroom that the company's plans to introduce the Lincoln brand to China lack.
The Mustang wild cardClearly, Ford isn't the only automaker that sees the opportunity in China. All of the large international automakers are working to get a place at the table. And Ford's move to export an American classic to the country helps to highlightthat the future for automakers isn't in developed markets, it's in emerging giants like China.
But the image of an American Mustang could be something that sets Ford apart from competitors and gives its related brands and vehicles a leg up in a nation full of people inching up the socioeconomic ladder. After all, whose head doesn't turn when a Mustang roars down the street?
The article Ford China: The Ford Mustang Is Just the Beginning of This Massive Auto Opportunity originally appeared on Fool.com.
Reuben Brewer has no position in any stocks mentioned and doesn't own a Mustang... but if he weren't married with a kid, well, he certainly wouldn't be driving the station wagon he now owns. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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