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Ford Motor Company (NYSE: F) announced that it was reorganizing its operations in Asia, making its operations in China an autonomous company and engaging a former Chinese auto executive as new CEO.
This is good news for Ford shareholders. Here's why.
What Ford said: A new leader for its business in China
Ford announced that Anning Chen, a former Ford executive who recently held the position of CEO of Chinese automaker Chery Automobile Ltd., will take over as chairman and CEO of Ford China, a newly created position to count November 1st. Chen succeeds Jason Luo. who resigned abruptly in January, as the leader of Ford's effort in China.
Ford also announced that its activity in China would become an autonomous unit, on par with its North American and European operations. Chen will report to Jim Farley, head of global markets at Ford. The remainder of Ford's former Asia-Pacific unit will be integrated into a new International Markets business unit. Ford said more details on the new unit of international markets would follow in a subsequent announcement.
Ford hopes that a new low-cost SUV called Territory will help reverse the decline in its sales in China when it arrives early next year. Source of the picture: Ford Motor Company.
Why This Is Good News For Ford Shareholders
It's an encouraging gesture. Ford's shares have been hammered in recent months as investors are increasingly worried about CEO Jim Hackett's plans to reorganize Ford's troubled business units.
No unit has experienced as much difficulties as Ford China, which saw its sales fall by 30% this year due to lack of new products. China is a huge market, with a large number of participants – all global car manufacturers, plus a large number of Chinese producers. The market is changing very quickly because there are always new products to consider. Ford has not kept pace; Ford's flagship product sales have declined as Chinese consumers view them as obsolete.
A turnaround of China is considered essential for Hackett's plan to increase Ford's profitability, but until recently, Ford had not provided much details about its plans for the region. This is changing now. When calling Ford's third quarter results on Wednesday, Farley gave some additional details on the state of Ford's restructuring in China.
- Ford has reduced excess inventory to reasonable levels. This hurt sales results in the third quarter, but had the positive effect of bringing profitability back to Ford dealers.
- Ford is preparing to launch three major new products in China: the all-new Ford Focus (already launched in Europe), a new version of the compact Ford Escort compact destined only for China and a new crossover SUV developed for China, Ford territory . These three products will be launched in the first quarter of 2019.
Farley also noted that Mr. Chen had a great deal of operational expertise and that he would focus on reducing procurement and engineering costs, which Farley sees as essential to increasing the profitability of the operations. Ford in China.
Result: Ford investors can finally see progress in China
Asked on Wednesday about the financial results, CFO Bob Shanks was not willing to set a timetable for Ford's turnaround in China. But it is clear now that progress is being made. Chen is an impressive rental company – the perfect type of executive to stay competitive in the rapidly changing Chinese market. It may take some time before Ford regains profitable growth in China, but at least the path to that goal is now visible.
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