Ford Brings Lincoln to China in Test of Latecomer’s Disadvantage

Apr 17, 2014 7:56 am ET

(For China auto show coverage, see SHOW<GO>.)

April 17 (Bloomberg) -- Ford Motor Co. is bringing its premium Lincoln cars to China, decades behind Volkswagen AG’s Audi and BMW, testing whether the second-biggest U.S. automaker can emulate the recent turnaround of its namesake brand.

Ford is introducing two models -- the Lincoln MKC compact crossover and the mid-sized MKZ sedan -- today at a mall in Beijing’s central business district frequented by young shoppers looking for hip brands like G-Star Raw and Paul Frank. After the MKC joins the sedan in U.S. showrooms, they’ll land in China by the fourth quarter, the first of five Lincoln vehicles destined for the country by 2016.

Here’s what Lincoln is up against: Volkswagen AG’s Audi, Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz have more than a combined half-century of experience there and account for more than 70 percent of sales in China’s maturing luxury car market. Still, being a latecomer didn’t stop Ford from seeing the fastest growth among major carmakers in China last year, even overtaking Toyota Motor Corp. in the country.

“It will be a long branding process,” said Zhu Bin, a Shanghai-based analyst at researcher LMC Automotive. “They will be starting from scratch.”

Days following its China debut, Lincoln will show a concept sport utility vehicle at the Beijing auto show, the brand’s first such vehicle to be revealed outside the U.S., as it seeks to capitalize on China’s growing appetite for luxury vehicles. China will overtake the U.S. as the world’s top premium car market in 2016, according to McKinsey & Co. estimates.

Lexus Approach

Jim Farley, Dearborn, Michigan-based Ford’s chief marketing officer, likened Lincoln’s move into China to when Toyota introduced its upscale Lexus brand in the U.S. in the late 1980s.

“We did Lexus as much to stem the conquest as we did for the business opportunities,” Farley, who was instrumental in the birth of Lexus, said in an interview. “We recognize the burden is on us to surprise people and to be different.”

While Lincolns are not officially sold there, Town Cars are available on the so-called gray market, where vehicles are sold outside of the of manufacturer’s authorized channel, he said.

For Ford Chief Executive Officer Alan Mulally, who signed off on more than $1 billion in spending for Lincoln, success in China would help revive the brand. Sales in the U.S., which still accounts for virtually all of Lincoln’s global deliveries, have tumbled 65 percent from their peak in 1990.

Discerning Customer

The company has no plans to build the cars in China and will rely on imports, said John Lawler, head of Ford China, in an Apr. 14 interview. Lincoln is looking at buyers between 35 and 40 years old and living predominantly in larger cities, he said.

That’s a demographic that’s coveted in a competitive field and Lincoln’s late entry isn’t going to help, Zhu said.

Still, Ford’s done it before. Even though the company started producing cars in China in 2003, about two decades behind market leader Volkswagen, the popularity of its SUVs and Focus cars helped Ford see a 49 percent surge in China sales last year, overtaking Toyota to become the nation’s fifth- largest foreign automaker. This year, it’s on pace to overtake Hyundai Motor Co. and Nissan Motor Co. for third place.

Mark Fields, Ford’s chief operating officer, brushed aside concerns about Lincoln’s late start in China.

‘Clean Sheet’

“Starting from a clean sheet has a lot of advantages,” Fields said to reporters yesterday at the New York Auto Show. “We’re going to really focus on not only the distinctiveness of the product in the marketplace, but, because of our size, we can provide a lot of personal service to customers.”

The expansion to China makes Lincoln a global brand, Fields said. He declined to comment on which other markets Ford may take the brand.

“We’ll see what other opportunities open up from there,” he said.

Lincolns in China will sell for two- to three-times the price of the popular Ford Focus compact, which retails for $20,000 to $25,000 -- and will be twice as profitable, Farley said.

“China is the key to success,” said Klaus Paur, London- based global head of automotive at researcher Ipsos. “If you’re not able to succeed in this market, by definition, you have an issue.”

First Stores

The premium brand’s first stores will be in China’s major east coast cities, Beijing, Shanghai and Guangzhou. Lincoln will initially have eight dealers in seven cities and expects to have 60 in 50 cities by 2016, Matt VanDyke, global director of the Lincoln brand, said in a briefing with reporters in Dearborn.

Lincoln is trying to differentiate itself with its showrooms. Customers walk in past a water wall and then walk past a “heritage wall” of pictures of classic Lincolns and shots of Henry Ford, the company’s founder.

The dealerships are designed with glass looking over from the customer lounges to the service bays. The cars are elevated on stanchions and will be lighted so they’re visible from the outside at night like jewelry.

Stout Competitors

Lincoln dealers will need to compete with those of Audi, the top-selling premium brand in China. It sold 491,989 units in China and Hong Kong last year and CEO Rupert Stadler said last month sales would exceed half a million vehicles this year.

Though the German brands dominate, Lincoln will also contend with Tata Motors Ltd.’s Jaguar Land Rover, General Motors Co.’s Cadillac, Nissan’s Infiniti and PSA Peugeot Citroen’s DS, all of which have head starts and are investing in Chinese plants to avoid the 25 percent tariff for imported vehicles.

Being imported will be an impediment for Lincoln to achieve high volumes, said Jochen Siebert, Shanghai-based managing director for JSC Automotive Consulting.

“It makes them more expensive than any BMW, Audi or Mercedes,” Siebert said. “They’ll remain a niche player, selling around 20,000 vehicles a year.”