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Ford in Q3 2018: China Continues to Be a Key Worrying Factor

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Ford’s third-quarter performance

In the previous two articles, we looked at Ford Motor Company’s (F) revenue and profitability in North America. The company’s revenue from its largest market rose in the third quarter, and its profitability also remained strong.

Higher US demand for trucks, including F-Series pickup trucks and utility vehicles, helped the company post stronger revenue and profits in its North American segment. Now, let’s take a look at Ford’s worsening performance in China.

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China performance

Currently, Ford reports its China market’s results under its Asia-Pacific segment. On October 23, the company revealed that it was elevating China “as a stand-alone business unit, reporting directly to global headquarters.” In addition, the company named Anning Chen as the president and CEO of its China business unit effective November 1.

In the third quarter, Ford continued its struggle in China, the world’s largest auto market. During the third quarter, its Chinese market wholesale volumes fell ~49% YoY (year-over-year) to 135,000 units. This sharp fall hurt Ford’s equity income from China, which stood at -$38 million in the third quarter compared to $241 million in the third quarter of 2017.

Note that being the world’s largest auto market (XLY)China has become a key focus for automakers such as Ford, General Motors (GM), Toyota (TM), and Fiat Chrysler Automobiles (FCAU) in the last few years.

Words from CEO on China

During Ford’s third-quarter earnings conference call, CEO Jim Hackett said, “Our performance in China clearly has been disappointing. I can assure you the leadership of the company has swarmed the issue and we identified what is required for a turnaround plan.”

Hackett added, “I’m excited about the hire of Mr. Anning Chen, whose background, believe it or not, includes a stint at Ford more than a decade ago. Anning’s appointment allows us to reorganize our AP region so that China is now a standalone business, reporting directly to Jim Farley to ensure that we improve speed, execution, and local expertise.”

Ford’s new announcement and Hackett’s views suggest that the company is taking action to revive its China business. However, this news may not boost investors’ confidence until it showcases consistent positive growth in China going forward.

Next, let’s take a look at Ford’s third-quarter profits.

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