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How Lincoln got its way in China with the Lincoln Way

China has turned into a second large pillar of revenue and profit for Ford Motor Co. There were a couple of encouraging trends in Ford’s China sales performance in 2016. First, sales of its SUVs – EcoSport, Kuga, Everest, and Explorer – continued to be strong. A second bright spot was definitely its Lincoln luxury brand, which set a sales record in China in 2016 with 32,558 units sold, compared to 11,630 units sold in 2015.

 

From crisis to revival

Founded in 1917 by Henry Leland, one of the most successful American automotive entrepreneurs of the early 20th century, Lincoln was a magnificent brand for almost its entire history. Premium cars were Leland’s specialty, along with a Roaring Twenties version of mergers and acquisitions: Lincoln went to Ford in 1922.

In the mid-1950s, when the U.S. auto industry was at its post-war apex, Lincoln created its iconic Continental. The 1961 Continental was one of the most famous cars ever designed and in the late 1990s, Lincoln gave birth to its first large luxury SUV, the Navigator.

By the time gas prices in California hit almost $5 a gallon in 2009, the market shift was a disaster for the Lincoln brand, which couldn’t compete with the German luxury triumvirate of Mercedes-Benz, Audi and BMW. Lincoln wasn’t matching up against the Japanese, either: Lexus, Infiniti, and Acura were hanging with the Germans. Lexus was a first choice with many buyers, and seemed to have figured out how to beat the Germans at their own game. Acura and Infiniti were “second-tier” luxury brands, but even the seconds were stronger than Lincoln, which was barely on anyone’s radar.

By the time the 2008 financial crisis hit, Lincoln had almost no brand identity left. The cars were perfectly competent, but unlike BMW’s or Mercedes’ sport sedans, which came in various trim levels to satisfy different customers, Lincoln had nothing to measure up to the high-performance M Sport or AMG divisions owned by BMW and Mercedes, respectively.

By 2010, after worst financial crisis was over, Lincoln was going through its roughest period ever. Ford was stuck with a tough call: Fix Lincoln or let the brand go? Alan Mulally – Ford’s CEO at that time, considered shutting down the Lincoln brand altogether, but with a new leadership came a change in direction. New CEO Mark Fields chose what was best for Ford: keeping Lincoln. Since 2013, Mark Fields has pledged to revive the brand, committing $2.5 billion in the five years that ensued to the task. And he assigned Kumar Galhotra the CEO of Lincoln, one of the toughest jobs in the entire industry. The most important task for Galhotra was: establish the Lincoln brand in in China.

 

Getting it right in China

The Lincoln brand name has long faded in America, as most consumers don’t consider it a true contemporary luxury brand like its German and Japanese rivals. China’s luxury car market boom is expected to continue for several more years. According to Ford’s own estimates, global luxury car sales will grow by nearly a third to 10.7 million by 2020, with China driving much of that increase. This means that China is a huge opportunity for Ford and getting the products and features right in China is of crucial importance for Lincoln to make a comeback.

Unlike GM with Buick, Lincoln is a new arrival in the Chinese market for Ford. There are advantages with this: Lincoln has a blank slate in the country. Before entering China, Lincoln conducted three years of research about what Chinese luxury consumers – who are 20 years younger on average than American luxury consumers – really wanted. Before long, Ford had several initiatives for Chinese consumers. Features such as reclining back seat with massage options and infotainment controls within easy reach have been introduced to target wealthy Chinese consumers who prefer to be chauffeured.

Since its arrival in 2014, Lincoln has been increasingly recognized in China, becoming the fastest-growing luxury brand in the domestic market. The growth has been underpinned by a promotional strategy called The Lincoln Way.

What is The Lincoln Way? It’s a personally crafted luxury which offers personalized services to customers based on their individual needs. All Lincoln’s dealerships were developed through careful study of luxury hotels and high-end retailers in China. Each dealership has a welcoming home-like atmosphere and provides perks like personalizing technology and private tea rooms as customers select their car. The spaces are meant to feel like palaces rather than showrooms full of cars parked all over the floor. They are also equipped with number-plate recognition-systems that will alert all employees at the dealership to the name and information of the person arriving. The employees can then quickly guide these customers to their appointments.

In addition, Lincoln is also offering more intensive service transparency to Chinese buyers, including informing owners in writing about the diagnosis, repair and maintenance of their vehicles and allowing them to watch service live from inside dealership lounges. Every dealership in China offers extended service hours and provide loaner vehicles for repairs that require more than two hours.

It’s a lot of work, but it has paid off. The Chinese consumer perceives the Lincoln brand ahead of Lexus and Audi in terms of prestige. A report from professional services firm PricewaterhouseCoopers LLP shows that Lincoln won the highest-in-industry customer satisfaction.

The company sold 11,630 vehicles in China in 2015 and 32,558 units last year, representing a 179.9 percent growth. Lincoln is getting very close to Infiniti which sold 41,590 cars in 2016. They are catching up with Cadillac (118,016), but still very far away from Audi (589,088), BMW (516,355) and Mercedes-Benz (472,844).

None however comes even close to the 179.9 percent growth. Cadillac comes in second with plus 47.5 percent and Mercedes-Benz third at 26.6 percent growth. Lincoln currently sells the MKZ, MKC, MKX, Navigator and the Continental in China. The new Lincoln Continental has been on the market since November 2016. China is only the third country in the world to get the new Lincoln flagship after the U.S. and Canada. Sales of the Continental in Q4 made a big contribution to total sales.

The automaker now has 54 Lincoln stores and four branches in China. The number of stores is expected to reach 80 by the end of 2017.

 

Road ahead not so rosy  

China holds a strong growth potential for Lincoln and the brand is targeting sales of 300,000 units globally by 2020, with much of the growth expected to come from China. So far Ford hasn’t announced plans to manufacture the Lincoln in China. Ford decided that the “imported from America” tag gives the Lincoln brand an exclusive cachet. That means the brand will be burdened by a 25 percent import tax. In addition, imported from America would cost the company a significant amount of transport expense, which causes it to price the vehicles not competitively and less profitability. While price may not be as important in the high-end segment, trying to sell more against established brands like Audi, Mercedes and BMW with a significant price disadvantage will be challenging.

In December 2016, President-elect Donald Trump stirred a hornets’ nest when he disputed the assumption that Taiwan is part of China. A few days later, the government handed SAIC-GM a ¥200 million ($29.07 million) anti-monopoly fine for price fixing. The easiest way to punish a foreign company would be to slap anti-dumping tariffs on imported vehicles. Lincoln would be the easiest scapegoat as almost every other competing brand manufactures vehicles in the country.

Another challenge involves its product portfolio: most of the competitors have hybrids in their line-up or are rushing them to market. Mercedes-Benz has introduced hybrid versions of its E-Class in China since 2015. The Audi A6L e-tron and the Volvo S90 T8 for example will both hit the market in the first half of this year. Lincoln doesn’t offer a hybrid and hasn’t announced one yet. Hybrids are fast becoming more popular especially among tech-savvy younger consumers.

An old Chinese saying says that the best time to plant a tree was twenty years ago, but the second best time is today. While its popularity in China is increasing, competitive pricing through domestic manufacturing in China now would certainly help Lincoln to reach its ambitious sales target by 2020. Otherwise, no one should expect the road ahead for Lincoln to be easy.

 

SIDEBAR:

Lincoln’s Milestones in China

2014

April 17

The U.S. luxury brand announces in Beijing that it will be launching “personally crafted luxury” called The Lincoln Way in China. The new MKC and MKZ were presented to Chinese customers.

April 20

The Lincoln MKX concept car makes its world debut at the Beijing Auto Show.

June 27-October 10

The Lincoln Space China Tour sets out from Shanxi Province. It travels to Chengdu, Sichuan Province; Guangzhou, Guangdong Province; Shanghai; Hangzhou, Zhejiang Province; and Qingdao, Shandong Province.

October 23

Lincoln officially launches in China and announces the retail pricing for the MKZ and MKC.

November 6

The first three Lincoln stores open in Beijing, Shanghai and Hangzhou.

2015    

March 26

Pricing of the MKZ and MKC Presidential Series announced to Chinese customers.

April 20

The newly expanded Lincoln line-up presented at the Shanghai Auto Show with the debut of three new models – Continental Concept, MKX and Navigator. Presale prices for the new MKX were announced.

September 14

The first phase of The Virtual Lincoln Way is unveiled. The project is designed to satisfy growing customer demand for different ways to shop, buy and deliver vehicles online.

October 20

The medium-large sized SUV MKX hits the market in Beijing.

November 20

Pricing for the full-size Navigator is announced at Guangzhou Auto Show and phase two of the Virtual Lincoln Way is unveiled at the event.

2016

January 8

Lincoln announced it sold 11,630 cars in China in 2015, the first full year for the U.S. premium brand in China.

April 25

The third phase of the Virtual Lincoln Way is unveiled and another two cars, the Continental and the 2017 MKZ, are showcased at the Beijing Auto Show.

November 28

The Lincoln Continental hits the Chinese market.

2017

January 10

Lincoln announced it sold 32,558 vehicles in China in 2016, up 179.9 percent from 2016.

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