Ford wakes up badly burnt from its India dream By Reuters


© Reuters. FILE PHOTO: A customer is mirrored as he takes photos of a Ford Aspire automotive throughout its launch in New Delhi, India, Oct. 4, 2018. REUTERS/Anushree Fadnavis/File Picture


By Aditi Shah

NEW DELHI (Reuters) -When Ford Motor (NYSE:) Co constructed its first manufacturing unit in India within the mid-Nineteen Nineties, U.S. carmakers believed they have been shopping for right into a increase – the subsequent China.

The economic system had been liberalised in 1991, the federal government was welcoming buyers, and the center class was anticipated to gasoline a consumption frenzy. Rising disposable earnings would assist overseas carmakers to a market share of as a lot as 10%, forecasters mentioned.

It by no means occurred.

Final week, Ford took a $2 billion hit to cease making vehicles in India, following compatriots Normal Motors Co (NYSE:) and Harley-Davidson Inc (NYSE:) in closing factories within the nation.

Amongst foreigners that stay, Japan’s Nissan (OTC:) Motor Co Ltd and even Germany’s Volkswagen AG (OTC:) – the world’s greatest automaker by gross sales – every maintain lower than 1% of a automotive market as soon as forecast to be the third-largest by 2020, after China and the US, with annual gross sales of 5 million.

As an alternative, gross sales have stagnated at about 3 million vehicles. The expansion charge has slowed to three.6% within the final decade versus 12% a decade earlier.

Ford’s retreat marks the tip of an Indian dream for U.S. carmakers. It additionally follows its exit from Brazil introduced in January, reflecting an business pivot from rising markets to what’s now extensively seen as make-or-break funding in electrical autos.

Analysts and executives mentioned foreigners badly misjudged India’s potential and underestimated the complexities of working in an unlimited nation that rewards home procurement.

Many didn’t adapt to a desire for small, low-cost, fuel-efficient vehicles that might bump over uneven roads with no need costly repairs. In India, 95% of vehicles are priced under $20,000.

Decrease tax on small vehicles additionally made it more durable for makers of bigger vehicles for Western markets to compete with small-car specialists equivalent to Japan’s Suzuki Motor Corp – controlling shareholder of Maruti Suzuki India Ltd, India’s greatest carmaker by gross sales.

Of overseas carmakers that invested alone in India over the previous 25 years, analysts mentioned solely South Korea’s Hyundai Motor Co stands out as successful, primarily on account of its large portfolio of small vehicles and a grasp of what Indian consumers need.

“Corporations invested on the fallacy that India would have nice potential and the buying energy of consumers would go up, however the authorities didn’t create that form of atmosphere and infrastructure,” mentioned Ravi Bhatia, president for India at JATO Dynamics, a supplier of market knowledge for the auto business.


A few of Ford’s missteps will be traced to when it drove into India within the mid-Nineteen Nineties alongside Hyundai. Whereas Hyundai entered with the small, reasonably priced “Santro”, Ford supplied the “Escort” saloon, first launched in Europe within the Sixties.

The Escort’s worth shocked Indians used to Maruti Suzuki’s extra reasonably priced costs, mentioned former Ford India govt Vinay Piparsania.

Ford’s slim product vary additionally made it arduous to capitalise on the enchantment received by its best-selling EcoSport and Endeavour sport utility autos (SUVs), mentioned analyst Ammar Grasp at LMC.

The carmaker mentioned it had thought of bringing extra fashions to India however decided it couldn’t achieve this profitably.

“The wrestle for a lot of world manufacturers has at all times been assembly India’s worth level as a result of they introduced world merchandise that have been developed for mature markets at a high-cost construction,” mentioned Grasp.

A peculiarity of the Indian market got here in mid-2000 with a decrease tax charge for vehicles measuring lower than 4 metres (13.12 ft) in size. That left Ford and rivals constructing India-specific sub-4 metre saloons for which gross sales in the end disenchanted.

“U.S. producers with massive truck DNAs struggled to create a very good and worthwhile small car. No person acquired the product fairly proper and losses piled up,” mentioned JATO’s Bhatia.


Ford had extra capability at its first India plant when it invested $1 billion on a second in 2015. It had deliberate to make India an export base and lift its share of a market projected to hit 7 million vehicles a yr by 2020 and 9 million by 2025.

However the gross sales by no means adopted and general market development stalled. Ford now utilises solely about 20% of its mixed annual capability of 440,000 vehicles.

To make use of its extra capability, Ford deliberate to construct compact vehicles in India for rising markets however shelved plans in 2016 amid a world client desire shift to SUVs.

It modified its value construction in 2018 and the next yr began work on a three way partnership with native peer Mahindra & Mahindra Ltd designed to cut back prices. Three years later, in December, the companions deserted the thought

After sinking $2.5 billion in India since entry and burning one other $2 billion over the previous decade alone, Ford determined to not make investments extra.

“To proceed investing … we wanted to indicate a path for an affordable return on funding,” Ford India head Anurag Mehrotra informed reporters final week.

“Sadly, we aren’t in a position to do this.”

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