CMO Strategy

With Car Sales Stalled in China, Ford Looks for New Customers in Smaller Cities

Ford's Nigel Harris Says Online Media Will Lead the Fiesta Launch Campaign

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Ford China's Nigel Harris
Ford China's Nigel Harris
SHANGHAI (AdAgeChina.com) -- The global financial crisis, natural disasters, high fuel prices and China's cooling economy have put the brakes on runaway car sales in China.

Passenger vehicle sales fell 1.4% in September 2008 from a year earlier, to 552,800 vehicles. In August, sales fell 6.3% from a year earlier to 451,300 cars--the first decline in more than three years.

Ford Motor Co. is one of the car 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 fall from the 30% growth rate the company enjoyed a year ago. And China's overall growth rate just hit a five-year low, falling to 9% in the last quarter.

In this gloomy environment, Nigel Harris, 47, is charged with keeping the auto giant 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 the 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. It also sells the S-MAX minivan and is about to relaunch the Fiesta to spur sales among 20-somethings.
Ford China's Nigel Harris
Ford China's Nigel Harris
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. Despite softening car sales in China, he is 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 during an interview in Shanghai late last month with AdAgeChina Editor Normandy Madden.

"There's a bit of a correction happening at the moment. Is there more pressure on to make sure we are profitable in China? Yes, probably there is. But China is still very dynamic and robust. It is already the No. 2 car market in the world and is rapidly heading towards No. 1."

Below is an edited transcript of their conversation.

When will China overtake the U.S. as the world's No. 1 car market?
We were saying it could happen in 2015 but North America has had a big correction. This year, China may only be two or three million units behind them. It might happen faster.

Is China heading for a big correction too?
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.

How will the slowing GDP affect China's car industry?
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 [before buying a car], because there are things happening in China and in the world economy. Cautiousness is coming through, but the fundamentals are still good.

What factors are curbing car sales in China right now?
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.

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?
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.

How does Ford adapt its strategy for China's smaller cities?
From a marketing perspective, it's a real challenge. Two years ago, a lot of our media was targeted in tier-one cities. It was pretty simple. Now, we're looking at upwards 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 118,000 RMB ($17,260) and goes up to 155,000 ($22,600). You see more Focus cars at the 118,000 end in the tier-two and tier-three markets.
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.

What's driving demand in these cities?
We're seeing a rising middle class with good education. Industry has been a priority in tier-two and -three cities. They are becoming more affluent so more people are getting better-paid jobs and reaching that threshold where they can afford a car. As they earn more and get confidence in the economy, they're prepared to buy big-ticket items like cars or houses.

Who are your main competitors in China?
For Focus, it's Toyota Corolla, Peugeot 307, Volkswagen Sagitar, and Shanghai General Motors' Excelle [a small Buick model only sold in China]. Focus consumers are a lot younger than what you'd see in other markets. Visit a showroom on a Saturday market, it's like a supermarket, it's so busy. If you went into a mature car market, you'd see a real demographic spread. Ford is positioned as a youthful brand, that really plays to that younger age group, mostly singles and young marrieds.

What about the Mondeo?
The Mondeo is quite different. It competes against the Toyota Camry and Honda Accord and some of Volkswagen's models. The C/D segment is a little bit older than the Focus market.
The car has a very sporty look about it compared to the competition and there is a segment that wants it. They are younger, under 35. They normally drive themselves, they aren't driven by chauffeurs. They are more entrepreneurial, they are risk-takers, and they lean a bit more towards individualism.
The Mondeo is heavily influenced by corporate and government buyers. They have some specific requirements and there's a price range they work with, and there's clearly a hierarchy. The most senior people get the highest luxury. As you move down the grade or ranks, so does the quality of car.

Does that mean you need a bigger spectrum of vehicles for each brand?
You definitely need a tiered approach. We've got five levels of specifications for the Mondeo, more than other markets.

Ford is introducing a new Fiesta in China later this year. What can you tell us about it?
Three and a half years ago, we established what was going to be required of the Fiesta for this market. The five-door customer more than likely is from a single-child family that brings in some different behaviors.
There's a lot of support from the family. When they go to buy their car, parents are involved or will buy the car for them. They spend well over five hours a week on the internet. They go to bars and clubs. They have fun. This is not a conservative customer or a stay-at-home generation. They don't watch much TV. The internet is becoming one of the most efficient ways of reaching everyone, through straight advertising, social networking sites, auto sites.

Will online media drive the Fiesta relaunch?
Definitely. For Focus and Fiesta, the internet is very important but for Fiesta, we're really dialing it up. Digital will be a major part of the launch. For Mondeo, it's slightly different. Those customers don't spend as much time on the internet but they do travel frequently around the country so a key part of marketing for Mondeo is airport advertising.

What else influences purchasing decisions in China?
The greatest influencer is family and friends. The internet is second. Motor shows are third. We support 120 motor shows a year here. Every city basically runs its own show at least once a year. Whether they're in Suzhou or Chengdu or Shanghai or Xi'an, a lot of people go to them. They're selling shows. People want to know more about our models, but they will actually buy cars at the shows.

Are motor shows equally crucial in any other countries?
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.

Why did Ford stop using Mindshare and hire a local media company with less international planning experience?
Good question...I expected this one. Part of our requirement is to make sure we have the most competitive media company, both in terms of service and cost. You have to test the market from time to time. We did that with quite a lot of rigor. The company we use now, Walk On, won the tender. Literally, it was just a straight market-testing process and they won. It's as simple as that.

Industry speculation suggested the decision was pushed through by Ford's local partner in Chongqing.
No, that's not the case. The Chinese partner and Ford always use the best and most cost-efficient suppliers. You've got to have a process. If there is a company that can do the job and deliver it for us at the lowest possible cost, if that's the case, that's the company we should use.

Will Ford spend more or less next year on marketing in China?
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 mediums are giving us the best cut-through and whether they're becoming more expensive.

You've been in China almost a year and a half. What's the biggest challenge for you?
Communication and understanding the cultural aspects of China. Chinese culture is different. It is complex. What's funny in a western environment might not be humorous in a Chinese environment.
The trick is having more patience than you might normally have. In your own culture and language, a lot of things can be left unsaid because you understand the fundamentals of why a decision is made and why it will work or why it wouldn't work. Here you can't assume that, so patience and really interrogating a statement and asking questions is critical.

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