Ford Motor Co. is one of the giants feeling the pain. Its China sales rose 7.1% from a year earlier to 240,879 vehicles during the first nine months of this year, a steep decline from the 30% growth rate the carmaker enjoyed in 2007. China's overall growth rate just hit a five-year low, falling to 9% in the third quarter.
In this environment, Nigel Harris, 47, is in charge of keeping Ford on track in the mainland. Based in Chongqing, a gritty industrial city in western China, he is Ford's VP-China as well as general manager of Changan Ford Sales Co., the marketing, sales and service arm of Changan Ford Mazda Automobile Co., a joint-venture between Ford and the ChangAn Automobile Group.
Ford's top two models in China are the Focus, a mass-market family sedan designed for young couples, and the Mondeo, which appeals to risk-loving entrepreneurs. Ford also sells the S-Max minivan and is about to relaunch the Fiesta.
Nearly all Ford customers in China are first-time car buyers, and 90% pay with cash, said Mr. Harris, a New Zealand native and 23-year Ford veteran. He remains optimistic about the mainland, which has just 14 cars per 1,000 people. "In North America, that number is over 900 cars," Mr. Harris said in an interview in Shanghai.
Ad Age: When will China overtake the U.S. as the world's No. 1 car market?
Mr. Harris: We were saying it could happen in 2015, but North America has had a big correction. This year, China may only be 2 [million] or 3 million units behind them. It might happen faster.
Ad Age: Is China heading for a big correction too?
Mr. Harris: Our call it's that it's a relatively soft landing. In 2005, there was a major correction that was sharp, deep and short [and lasted] less than a year. This one will be a shallower decline and probably last a year.
Ad Age: How will China's slowing gross domestic product affect its car industry?
Mr. Harris: It's a concern that has to be factored in. The impact is more about consumer confidence. We get a number of people who say they are going to wait, because there are things happening in China and in the world economy.
Ad Age: What factors are curbing car sales in China right now?
Mr. Harris: We had massive snowstorms in January and February, which caused a lot of disruptions. At one stage, we had 10,000 units stuck in different places, there was so much snow.
Then there was the earthquake in Sichuan, which was devastating. On top of that, China is getting caught up in the global situation. It will be less affected than Europe or North America, but there's pressure on exporters. We see it in the south and in the areas surrounding Shanghai.
There is pressure in tier-one cities too, because of softening property prices and lower export profitability. The government has slowed its procurement as well, as it concentrates on helping Sichuan province. Our total fleet sales are around 15% of our volume. Government sales are probably half of our fleet business, if not two-thirds.
Ad Age: Sales in tier-one cities such as Beijing, Shanghai and Guangzhou are under pressure. What's happening in China's second- and third-tier cities?
Mr. Harris: We've still got good growth. A lot of our distribution growth this year and next year is in tier two and tier three. That's where 90% of our new dealer appointments are coming from.
As a region reaches $6,000 GDP per capita, it starts to trigger purchasing power. China's eastern seaboard, starting from Beijing, down to Shanghai and right through to Guangdong, has been at that level for some time. Other areas, like the western provinces, are starting to reach it now.
Ad Age: How does Ford adapt its strategy in China's smaller cities?
Mr. Harris: From a marketing perspective, it's a real challenge. Two years ago, a lot of our media was targeted in tier-one cities. ... Now we're looking at upward of 30 regions.
The message doesn't change that much. But what you will see is different products being marketed. For example, in a tier-three city, you're not going to sell a lot of high-end large cars like Mondeo. But you will sell C-segment cars. We've got a Focus that starts at $17,260 and goes up to $22,600.
The new Fiesta will help too. We know we've got a better chance of doing well with smaller and more- affordable cars in those markets, so we've put a bit more media weight behind that in tier two and tier three.
Ad Age: Who are your main competitors in China?
Mr. Harris: For Focus, it's Toyota Corolla, Peugeot 307, Volkswagen Sagitar and Shanghai General Motors' Excelle [a small Buick model sold only in China].
Focus consumers are a lot younger than what you'd see in other markets. Visit a showroom on a Saturday, it's like a supermarket, it's so busy. If you went into a mature car market, you'd see a real demographic spread.
Ad Age: What influences purchasing decisions in China?
Mr. Harris: The greatest influencer is family and friends. The internet is second. Motor shows are third. We support 120 motor shows a year here.
Ad Age: Are motor shows equally crucial in any other countries?
Mr. Harris: Not that I can think of. Think about the scale of this country. It's hard to get dealerships where people are. You have to take the car to the people. Motor shows are part of that. So are product displays in places like shopping malls. You can do a lot of your activity on the internet, in terms of telling people what your product and brand is about. At some point, you've got to link the physical and virtual worlds.
Ad Age: Why did Ford stop using MindShare and hire a local media company?
Mr. Harris: Part of our requirement is to make sure we have the most competitive media company, both in terms of service and cost. ... The company we use now, Walk On, won the tender. Literally, it was just a straight market-testing process, and they won.
Ad Age: Industry speculation suggested the decision was pushed through by Ford's local partner in Chongqing.
Mr. Harris: No, that's not the case. The Chinese partner and Ford always use the best and most cost-efficient suppliers. ... If there is a company that can do the job and deliver it for us at the lowest possible cost ... that's the company we should use.
Ad Age: Will Ford spend more or less next year on marketing in China?
Mr. Harris: About the same. We set up our budgets carefully from a number of different angles, such as where the car model is in its life cycle. We look at the competition and what they're doing. We look at media inflation. We look to see which media are giving us the best cut-through and whether they're becoming more expensive.