Ford Expects 40% of Sales From China By End of Decade

Meghan Reeder | CNBC

Customers shop at a Ford dealership in Chongqing, China.

China, once a major weakness for Ford, is expected to generate 40 percent of the automakers annual sales by the end of the decade. The projection means China will likely pass the United States as Ford's largest market by 2020.

"I am spending more and more time, and our team is spending more and more time, in China," said Alan Mulally, Ford CEO. "We feel really good about our diversity and our position in china."

As Ford gears up for the Shanghai Auto Show later this week Mulally believes it has found the formula for winning in China: tapping the booming markets of inner China while also rapidly expanding the number of models for sale.

"We are the fastest growing brand [in China]. We are doubling our production capacity. We are bringing in all the Ford vehicles now," said Mulally.

Red Hot in a Hot Market

In a country where auto sales grew by 17 percent in the first quarter of the year, Ford's 54 percent jump stands out.

How did the American automaker grow sales three times faster than its competitors in China?

A big reason is the success of the Focus. The small car has been the best selling vehicle in Chin the last two years and shows no sign of slowing down.

"The styling is cutting edge compared to other products in the market and that makes a difference," said James Chao, Director of IHS Automotive in Shanghai. "Ford is known as a higher technology brand. They pack the vehicles with their Sync technology and that does resonate with the consumer."

(Read More: Ford Boosts Engine Production as Buyers Demand Fuel Efficiency)

Another reason the Focus is taking off in China is because the automaker has doubled the number of dealers it has in China. Many of the dealerships have been added in the growing inner part of China where many people and families are just starting to buy their first car or sports utility vehicle (SUV).

"There's a strong desire in those inland cities to be an owner of a vehicle despite what we might see as very bad traffic and those type of issues. There is still a very basic desire to own an automobile," said Chao.

Long Road to Catch General Motors and Volkswagon

As impressive as Ford's growth has been China, the blue oval is barely a blip in the rear view mirror of Volkswagen and General Motors. VW and GM dominate the Chinese auto market, where each of them sells more than three times as many vehicles as Ford.

(Read More: Volkswagen Revs Up to Overtake General Motors)

VW and GM lead China in large part because they started investing heavily in the country in the mid-to-late 90's when the communist government opened the door for foreign automakers. As a result, when the populated eastern part of China started buying millions and cars and SUV's, VW and GM were front and center in cities like Beijing and Shanghai.

By comparison, Ford was late to the game. While the company made small investments in China, in the late 90's and early 2000's Ford was primarily focused on growing sales and profits in the U.S.—where the popularity of the Explorer SUV and F-Series pick-up helped Ford's U.S. market share surge well above 20 percent. Those heady days ended with the Explorer tire controversy and the steady drop in U.S. sales and profits.

Mulally's China Strategy

In 2006, when Alan Mulally was brought in to turnaround Ford, he knew job one was shoring up a money-losing U.S. operation. Job number two was making Ford a true competitor in China.

"I remember one of the first conversations I had with Bill [Ford] was what's Ford's plan to support customers all around the world," noted Mulally. "I knew that was going to be a very important part of our growth plan going forward. He said we had a small operation in China, but he believed, like I did, that it was going to be a tremendous growth opportunity."

Since then, Ford has pumped more than $2 Billion into China adding six plants and raising its capacity to 762,000 vehicles. China now generates 11 percent of Ford's global sales

15 by '15

Ford China is now in the midst of its 15 X '15 campaign. An aggressive expansion that includes rolling out 15 new models by 2015. Chief Operating Officer Mark Fields is confident the campaign will pay off since it features the introduction of several SUV's and crossover utility vehicle (CUV's).

(Read More: Bye-Bye Minivans, Sales Slump While CUVs Surge)

"We are going to be in every segment of SUV's in China," said Fields. "When you look at the north and west in the interior of the country and you look at the infrastructure, maybe not as advanced as the coastal regions, we think our products will match up very well."

(Read More: Ford Apologizes for Ads Showing Women in Bondage)

Few expect Ford sales to continue growing three times faster that the industry pace in China.

Still, with Ford expecting 40 percent of its global sales coming from China by 2020, it's clear the Dearborn, Michigan automaker is primed for the day when China rivals, even passes the U.S., as Ford's largest market in the world.

—By CNBC's Phil LeBeau; Follow him on Twitter @LeBeauCarNews

Questions? Comments? [e-mail]

Click on company to track corporate news:

•General Motors

•Ford Motor

•Toyota Motor

•Nissan

•Honda Motor