Ford India, the Indian arm of American auto major, today announced that it is ending the manufacturing of vehicles in the country. The company has decided to shut down its car assembly plants in Sanand in Gujarat and Chennai in Tamil Nadu, after suffering continuous losses for several years. The company will however keep the engine plant in Sanand running and will continue to service its products in India.
The Ford Business Centre and the product development centre that caters to the global operation will continue to operate. Apart from this, the company will sell its iconic cars like Ford Mustang and Ford Endeavour in India through the import route. These cars will be imported completely knocked down or completely built cars.
Ford India follows its American counterpart General Motors, which had left in India in 2017. Ford India has been struggling with its Indian business for last several years, which were reflected in its financial status. The company has around $2 billion (Rs 14,802 crore) in accumulated losses in the last 10 years, and a $0.8 billion (Rs 5,921 crore) non-operating write-down of assets in 2019, while its revenue continues to decline and losses mount.
“Despite (our) efforts, we have not been able to find a sustainable path forward to long-term profitability,” Ford India head Anurag Mehrotra said in the statement announcing the decision to shut down its Indian car manufacturing operations. “The decision was reinforced by years of accumulated losses, persistent industry overcapacity and lack of expected growth in India’s car market,” he added. Around 4,000 employees are expected to be affected by this decision.
This decision comes after failed bid to launch a joint venture with Mahindra and Mahindra. The two companies had initiated discussions over setting up such a joint venture to manufacture Ford cars at a lower cost in 2019. Mahindra was to hold 51% in the JV, with Ford retaining 49%, and Ford was to transfer its India operations to the JV. But by the end of 2020, this venture was called off.
Ford India has been struggling in the Indian auto market dominated by Indian and Korean companies. Although it was among the first foreign companies to enter India after economic liberalisations, and despite having an impressive product portfolio, it was outpaced by other players in the market.
The company had originally entered India in 1926, but had closed down its operations in 1953 after the Indian govt implemented import restrictions. The company re-entered in India in 1995, and formed a joint venture with Mahindra and Mahindra. However, the JV had ended in 1998 when Ford had increased its stack in the company.
Ford India had virtually created the budget SUV segment in India with its EcoSport. Taking the benefit of the new tax law which prescribed a lower excise duty for cars below 4 meters in length, the company had launched the SUV at a much lower price compared to existing bigger cars in the segment. However, with time, it has been taken over by others like Maruti Suzuki, Tata Motors and Hyundai. Similarly, it had launched the sedan Aspire in sub-4 meter category, but could never put a dent on to competitors like Honda Amaze and Suzuki Swift Dzire.
Following the announcement by Ford India, the anti-Modi brigade has already started its familiar blame game, blaming Modi for the exit of the company dotted by a large number of other companies, both domestic and MNC. For example, AAP supporter and former banker Krishan Partap Singh declared that the company took the decision to take a hit of $2 billion in losses because it sees no future in the Indian economy.
Several social media users tried to blame the policies of the Modi govt on the failure of Ford India. But the fact is, the company has facing losses for several years. For example, as of March 2014, before Narendra Modi become the prime minister, the accumulated losses of the company were already Rs 1,764 crore. The accumulated losses of General Motors was also Rs 2,740 crore as of March 2014. Ford had made some profits in 2018-19, but that was minuscule compared to the size of the accumulated loss.
This means, the woes of the two American auto majors didn’t start after the Modi govt came to power, they were already in bad shape.
And due to the cutthroat competition in the Indian market, the companies could not survive. Several foreign automakers have entered India in the last several years, including Kia, MG Motors, Nissan owned Datsun etc, and are doing reasonably well. In fact, Kia India, which entered the country in 2017, has already captured a major market share and has emerged as the fourth largest car manufacturer by volume sales. Therefore it is incorrect to say that automobile companies do not see a future in the Indian market.
Ford India has less than 2% share in the Indian car market, which is dominated by Maruti Suzuki (48%), Hyundai (17%) and Tata Motors (8%).
Therefore, the failure of Ford in India can’t be linked to any govt policy, as such policies would have almost similar effects on other companies. But in India, the automobile sector has several companies with various levels of performance, which are the result of their products and their marketing strategies. The govt is encouraging local manufacturing with high import duties, which is a boon for companies having manufacturing plants in India.
It is notable that Ford India is the third American auto major to quit India in recent years. Earlier, auto major General Motors and iconic two-wheeler maker Harley Davidson had ended their Indian operations.