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Ford’s exit from India - a perspective
Ford’s exit from India - a perspective

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Last week, we heard the news about automotive OEM Ford exiting India, after being present in the country for more than 25 years. The company announced that manufacturing of vehicles for local sales will stop immediately, while export manufacturing will wind down at the Sanand plant by Q4 2021, and the Chennai engine and vehicle plants by Q2 2022. The OEM employs over 4000 people in the country, and it is expected to continue to operate selling imported CBU models through its Business Solutions team. It entered India as a 50:50 joint venture with Mahindra and Mahindra.

Ford is among the many American automotive companies who have left India, including Harley Davidson announcing closure of its facility last year and GM which exited India a few years ago.

According to SIAM data, Ford sold over 98,000 passenger vehicles (passenger cars and utility vehicles) in 2010-11. The figure remained more or less stagnant and the OEM sold over 92,000 PVs in 2018-19. From April to August 2021, it sold just under 16,000 passenger vehicles, capturing just about 1.38% of the overall market share (1.38% market share in PV and 2.64% in UV during April-August 2021).  Its best sellers included Ford Ecosport and Endeavour in the utility vehicle segment, its two best-selling vehicles. Other PVs included Ford Figo, Figo Aspire, Freestyle in the compact segment. These sales figures do not augur well for an OEM which has two production facilities having a combined capacity of producing 400,000 vehicles annually.

 

Why is Ford leaving India?

Ford

 

  1. Ford suffered huge losses of USD 2 bn over the last 10 years and USD 0.8 bn non-operating write-down of assets in 2019. The company’s combined production capacity is for 400,000 vehicles in India, across its two plants. In 2019, it produced over 2.5 lac vehicles, but could manage to sell about 92,000 domestically. 2020 was a year of anomalies and production was further hit by the pandemic. The future demand forecast had also been weak.
  1. It is claimed by experts that Ford also didn’t tailor its cars according to the Indian consumers and its product and platform strategy didn’t cater to the Indian masses. It didn’t have many cars in the small car segment which is the most popular segment in India, which was cashed in by Maruti and Hyundai in the late 90s. The company had Escort and Ikon which were launched in 1995 and 1999, respectively. Fiesta and Figo were launched in 2005 and 2010 and by that time it was a little late. Other changes in platforms were also not customized including getting out to open the left side door to open the boot, which could be a tedious affair in a country like India, where it is a right-hand drive. Other areas of focus for Ford seemed to be the engine power rather than the vehicle’s mileage, which is one of the first things an Indian customer looks into while buying a car.
  1. No new models introduced. Other auto OEMs continued to introduce new models but Ford continued to focus on Ikon for a long time, and by the time Ford launched new vehicles in the country, it seemed that it was late to the race. Figo was launched in 2010 and Ecosport in 2012. Endeavour was introduced in 2003, with the second generation getting introduced only in 2015.
  1. While it already had its Chennai plant running which offered huge capacity, the company spent over over USD 1 bn to set up its Sanand plant. While it could have expanded its Chennai plant’s capacity, Ford India chose to invest in a new greenfield facility, which may not have been the ideal strategy in hindsight.
  1. Ford’s best-selling models have been Ecosport and Endeavour, both in the Utility Vehicle segment. However, new launches from Maruti Suzuki, with its Ertiga, S-Cross, Vitara Brezza, etc., Hyundai with Creta, Venue, Mahindra and Mahindra with Bolera, XUV, etc., Toyota with Fortuner, and others, gave stiff competition to Ford in this segment. New entrants like Kia with Sonet, and even Tata Motors with Nexon further added pressure.
  1. JV announced in 2019 with Mahindra and Mahindra fell through. The advantages of shared expertise, cost, platforms, facilities, etc., hence, could not fructify. The idea of sharing its manufacturing facilities and take care of excess capacity also could not work as a result of this JV not working out.  Ford lost over 2 years in anticipation of this JV, which it could have used to design and develop new products tailored for India.

 

What does it mean for Indian customers?

For its consumers, Ford has shared that it will continue to support them.

  1. Ford is expected to continue to provide spares and customer service.
  2. It is also expected to continue to import high-end models like Mustang, Mach-e, Ranger etc.
  3. However, the sales of existing models such as Figo, Ecosport, Aspire, Endeavour, etc. will be done until inventories last.
  4. Consumers can expect heavy discounts from the OEM as well as the dealers for these existing models

 

What does it mean for Ford’s Indian dealers and suppliers?

  1. Dealers made huge investments, with as much as USD 272 mn invested in dealerships across the country, employing about 40,000 people. According to experts, approximately INR 5-6 crores are required to be invested to set up a Ford dealership in India.
  2. Customers are also expected to start cancelling their bookings, leading to further troubles. The fact that this news came just before Ganesh Chaturthi, when many customers were planning to get deliveries of their cars on the auspicious day, but cancelled after hearing this news has further infuriated the dealers.
  3. Dealers might also have also have to give heavy discounts to finish their Ford inventory. It is expected that the dealers are holding upto INR 150 crore of inventory, with many having taken funding and loans from banks.
  4. Federation of Automobile Dealers Associations (FADA) has also urged the govt. to step in to help Ford continue its operations regarding services until the vehicles are sold. These services are expected to run into problems once the India operations are shut down.
  5. The dealers are also unsure if they will receive any compensation from the company, unlike the west where they are protected under the Franchise Protection Act, in which companies are supposed to give adequate time and compensation.
  6. In addition, component suppliers of Ford across the Sanand and Chennai belt will also be adversely affected.

 

Who will benefit from Ford’s absence in India?

Ford’s bestsellers included Ecosport and Endeavour from the Utility Vehicle (UV) segment. It was not a major player in Passenger Vehicle (PV) segment, which is dominated by Maruti Suzuki and Hyundai.

With Ford’s exit, other OEMs might want to cash in the UV segment. Ford had 2.64% market share in UVs. Existing leaders of the segment like Maruti Suzuki, Hyundai, Mahindra and Mahindra, and Kia are expected to continue to solidify the space left by Ford.

While the pandemic has affected the overall automotive demand in the country, however, it is expected to recover in the coming quarters. With the exit of Ford, here’s a hope that all the OEMs can learn how to adapt in the Indian automotive market from the Suzukis and Hyudais of the world.


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Vandhna Babu
Principal Analyst - Research

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