Ford’s Dilemma: Make Lincoln in China?
Case Code: BSTR511
Case Length: 9 Pages
Pub Date: 2017
Teaching Note: Not Available
Organization: Ford Motor Company
Industry: Luxury Car Industry
Abstract Case Intro 1 Case Intro 2 Excerpts
Chinesse Car Market
In 2009, China became the largest auto market in the world with sales of more than 13.6 million motor vehicles (including passenger cars, light commercial vehicles (LCVs), and heavy trucks), compared to 10.4 million vehicles (including passenger cars and LCVs) sold in the US. According to experts, this had happened due to various reasons such as China’s rising GDP, the growing middle class in the country, and the various measures imposed by the Chinese government to support industry....
Chinese Luxury Car Market
In 2013, a McKinsey report on the future of Chinese premium car market revealed that in the first decade of the 21st century, the Chinese premium car market had grown at a compound annual growth rate (CAGR) of 36%, which was higher than the 26% CAGR of the overall Chinese passenger vehicles market. In 2012, the Chinese luxury car market, with sales of 1.25 million vehicles, was the second largest car market in the world, next only to the US.....
Ford’s origins date back to the early part of the 20th century. On June 16, 1903, Henry Ford Sr., together with 11 investors, incorporated the Ford Motor Company in Michigan. A few weeks later – in July 1903 – the first unit of the Model A, the earliest vehicle model launched by Ford, was sold to Ernst Pfennig, a Chicago dentist, for US$850. This was the first vehicle to be mass-produced by the company. Soon after, the company received several orders for the model and within a month, cars worth US$20,000 had been sold....
Ford in China
Ford’s first connection with China was established in 1928 when it set up its sales and service branch in Shanghai, the country’s financial hub. However, this branch was closed down at the start of World War II. Thereafter, a modern day connection was established after the visit of Chinese leader Deng Xiaoping to the US in 1978. In early 1979, Ford exported its F-series trucks to China. This was the first time since 1949 that any US-made vehicle had gone on sale in China. Later, in 1995, Ford established its subsidiary, Ford Motor (China) Limited, in the Chinese capital Beijing. In 2003, company launched the ‘Fiesta Compact’ in China....
Lincoln in China
In October 2014, Ford launched its Lincoln brand in China with a medium size luxury sedan and a small premium SUV. In 2014, it was able to sell 11,600 vehicles. Ford saw a significant growth of the Lincoln brand vehicles in 2016 with Lincoln’s sales jumping by almost 191% to 21,000 vehicles in the first nine months....
China imposed a hefty duty on imported goods to safeguard its local industry. The same was true of the car industry. Each car imported into China was liable for a 25% import tariff. If Ford started producing Lincoln cars in China, then the company could save on import duty as well as on logistic expenses. Lower costs not only gave room for the company to offer vehicles at a competitive price but also improved Ford’s margin....
Exhibit I:Production Facilities of Lincoln
Exhibit II: Top 15 Players of Global Premium Car Market (2016-Q1)
Exhibit III: Global Premium Car Sales Ranking (in thousand units)
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