To improve sales, it needs to build them locally
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It’s no secret that China has a huge appetite for new cars. By Reuters‘ estimates, the Chinese auto market is already 60-percent larger than the U.S. market. Over the next few years, expect that figure to grow even further. Unfortunately for Lincoln, every vehicle it sells in China has to be shipped from the United States. That makes it harder to compete with brands such as Cadillac that have their own factories in China. Under the new CEO, that’s likely going to change.
Reuters reports that by 2022, Lincoln plans to build as many as five vehicles in China. Doing so would allow the American luxury brand to increase sales, as well as avoid potential import tariffs. We already knew Ford planned to begin production on an SUV in China sometime next year, but so far, it’s been quiet about plans to move some of Lincoln’s production overseas.
The close-to-production Lincoln Aviator concept
That doesn’t mean Lincoln’s avoided the topic of China altogether. In a recent interview, CEO Joy Falotico told us that sales have continually improved and that Continental sales were up 69 percent for the year. She also pointed out that the Aviator is especially well-suited for sales in China since multi-generational families often need a third row of seating. “All of that design, those cues, those luxury touches, were informed by the Chinese customer,” Falotico said. “This vehicle really works for China and the U.S. equally.”
According to Reuters‘ sources, Lincoln will begin building the Aviator in China late next year. The redesigned MKC crossover will come later, as will the next-generation MKZ sedan. In 2021, a new version of the Nautilus will go into production in China, as well. Lincoln may also add a smaller crossover with coupe-like styling around 2022.
For now, there’s no reason to believe Lincoln will stop producing vehicles in the U.S. It simply needs to be able to build them in China, as well. “As long as Lincolns are not manufactured in China, the brand’s sales will no doubt suffer continuously,” Zhu Kongyuan, head of the China Auto Dealers Chamber of Commerce, told Reuters.
In an attempt to further improve residual values, Lincoln’s also recently shifted its focus away from fleet sales in the U.S. Automotive News reports that sales to commercial businesses such as limousine companies and hotels have continued, but Lincoln is working to reduce the number of vehicles it sells to rental car companies, as well as company cars.
“Those are very deliberate efforts to really focus on residual values as our new products come out,” Robert Parker, Lincoln’s head of sales, told Automotive News. “What happens is those cars come back in six to 12 months. That’s problematic on our residual values because that’s when all the depreciation occurs. The longer they stay out, the better.”
Better residuals should improve the brand’s reputation, but they’ll also allow Lincoln to offer more competitive lease deals without cutting into profitability. According to Parker, as leasing has grown increasingly popular, protecting residual values has become more important than ever.
In the short run, this move appears to have hurt the company. Lincoln sales were down 2.1 percent in March, and first-quarter sales are down about 17 percent. From a profitability perspective, though, Lincoln’s done well this year. Incentive spending of about $280 per vehicle is significantly lower than the luxury segment’s average of $790, and Lincoln’s average transaction price is up $6,200.
Sales of the recently redesigned Navigator has been even more impressive. It was up more than 100 percent year-over-year in March with an average transaction price that’s $25,600 higher than the year before.