What the exit of Ford Motor Company from India tells us
The third multinational to leave India in as many years, Ford had been struggling on the sales front, while a much-touted joint venture with Mahindra failed to take off
MG Arun
For several years, Ford India, the arm of the Michigan, US-based Ford Motor Company was identified in India through its “josh machine”, the Ford Ikon. Users of the Ikon vouched for its power and sturdiness. The success of the Ikon eclipsed the first product the company introduced in the Indian market as it re-entered it—the Ford Escort—after leaving India in 1953 following severe import restrictions. It returned to the Indian market in the avatar of Mahindra Ford India Limited, a 50:50 joint venture with Mahindra & Mahindra. But the Escort was also known as a dependable, sturdy vehicle and some of its owners (notably Wipro chairman Azim Premji) were known to use it for quite a number of years.
However, after just 25 years of operations—not too long for an auto manufacturer—Ford has decided to exit India. (Its rival, Japan’s Toyota has been in India since 1997, while Czech auto maker Skoda entered India in 2001.) Not that those years saw a smooth ride for the maker of iconic cars like the Model T, the Thunderbird and the Mustang. While it found big success in models such as the Ikon, the Endeavour and the EcoSport, others like the Mondeo and Fusion did not do as well as expected. The company had posted operating losses of over $2 billion (Rs 14,600 crore) and demand for its vehicles was weak. It could not find a sustainable path forward to long-term profitability, according to Ford India head Anurag Mehrotra. Calling off a joint venture (JV) it had entered with Mahindra & Mahindra in 2019 citing the Covid pandemic made matters worse for Ford. The JV was aimed at developing, marketing and distributing Ford vehicles in India and some Ford and Mahindra products in the high-growth international markets. With that JV off the cards, Ford’s chances of survival in the Indian market grew bleaker.
Ford will shut down its Sanand (Gujarat) plant by the fourth quarter of 2021 and end vehicle manufacturing and engineering at its Chennai plant by 2022. However, it will continue to sell cars in India through imports, and media reports say this will see the import of some high-end models such as the Mustang Mach-e, the Mustang and the Ranger. Ford will also provide continuing support to dealers to serve existing customers. Around 4,000 of its staff will be impacted by the decision.
The string of exits of big MNC firms from India does not augur well for the country, which has been seeing high unemployment numbers during the pandemic. General Motors’ exit in 2019 was driven by a decision to get out of non-profitable operations in a few regions including India, Russia and Western Europe. Harley Davidson left India as part of its ‘Rewire’ strategy to focus on select markets such as North America, Europe and some parts of Asia. The company had a loss of $96 million during the April-June 2020 period. This may not be a big loss in itself, but clearly, it did not seem to indicate good demand in the near future. The pandemic has only made matters worse for auto companies as they were forced to keep their retail outlets shut during the lockdown period.
The world over, auto companies are conducting big revamp exercises as the pandemic takes its toll on their revenues. They also need to invest heavily in new businesses like electric vehicles, which is where the future of the auto sector lies. According to the Paris-based International Energy Agency, after a decade of rapid growth, the number of electric cars globally hit the 10 million mark in 2020, a 43 per cent increase over 2019. Battery electric vehicles accounted for two-thirds of the new electric car registrations in 2020. China, with 4.5 million electric cars, has the largest fleet, though in 2020 Europe had the largest annual increase, reaching 3.2 million.
The Indian market is especially tough for these MNCs due to the dominance of the Japanese and Korean car makers. Maruti Suzuki has a roughly 48 per cent share in the Indian market, while Hyundai India has around 17 per cent. At the same time, demand has been muted. Auto sales have registered a combined annual growth rate of just 1.5 per cent in India over the past five years, upsetting the plans of MNCs who have heavily invested in the Indian markets. The government has announced a scrappage policy where it is mandatory to get one’s car inspected when its registration certificate expires. As per law, a registration certificate for a passenger vehicle is valid for 15 years from the date of issue. But there is no clarity whether this will have any significant impact on the sales of automobiles. In August this year, wholesale auto sales fell 12 per cent year-on-year, which the industry attributed to an ongoing shortage of semiconductors that has impacted output, and the high commodity prices that have increased vehicle costs. Add to this the rising cost of fuel in the past few months, and vehicle demand is expected to remain under pressure, forcing companies to rework their strategies in a ‘cost-conscious’ market like India.
Ford to stop making cars in India
By Aditi Shah and Aditya Kalra
September 9, 202110:59 AM EDTLast Updated 5 days ago
The U.S. carmaker entered India 25 years ago but still has less than 2% of the passenger vehicle market having struggled for years to win over Indian consumers and turn a profit.
Ford said in a statement on Thursday that it had accumulated operating losses of more than $2 billion in 10 years in India and demand for its new vehicles had been weak.
"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.
Ford's decision to cut its losses in India after leaving Brazil earlier this year underscores the pressures on global automakers to invest more in electric and automated vehicles, as well as connected vehicle technology.
Global automakers once fought to maintain a presence in every major market, and were willing to lose money to do so.
Now, companies such as Ford, General Motors (GM.N), Renault SA (RENA.PA)and Stellantis NV (STLA.MI) are walking away from money-losing ventures and redirecting capital to electrification and investment in technology they need to survive.
Ford's decision also comes as a setback for Indian Prime Minister Narendra Modi's "Make in India" campaign. It follows other U.S. vehicle makers such as General Motors (GM.N) and Harley Davidson (HOG.N) that have left India in recent years.
Mehrotra said Ford's decision was also reinforced by "persistent industry over capacity and lack of expected growth in India's car market".
India was expected to become the world's third-largest car market by 2020 after China and the United States with sales of some 5 million vehicles a year. Instead, sales have languished at about 3 million, still trailing Europe and Japan too.
India's car market is dominated by low-cost, mainly small cars made by Japan's Suzuki Motor Corp (7269.T). Its Maruti Suzuki brand accounts for seven of the top 10 sellers with South Korea's Hyundai Motor (005380.KS) making the other three.
WINDING DOWN
Ford has been escalating investment in electric vehicles (EVs) and advanced software. In May, it said it would boost spending on EVs by a third to $30 billion by 2030.
With so much on Ford Chief Executive Jim Farley's plate since he took charge last year and limited financial resources, India was a lower priority, a source previously told Reuters.
As part of the plan, Ford India will wind down operations at its factory in Sanand in the western state of Gujarat by the fourth quarter of 2021 and vehicle and engine manufacturing in its southern Indian plant in Chennai by 2022.
Ford has the capacity to produce about 440,000 cars in India a year across both plants but is only using about 25% of that, according to data intelligence company Global Data.
The U.S. automaker will continue to sell some of its cars in India through imports and it will also provide support to dealers to service existing customers, it said. About 4,000 employees are expected to be affected by its decision.
The decision to stop production came after Ford and India's Mahindra & Mahindra (MAHM.NS)failed to finalise a joint venture partnership that would have allowed Ford to continue making cars at a lower cost than now but cease its independent operations.
Ford said it had considered several other options for India including partnerships, platform sharing, contract manufacturing and the possibility of selling its manufacturing plants, a plan that is still under review.
Ford will continue to operate its engine factory in Sanand which exports engines for its Ranger pick-up trucks globally. It will also continue to rely on India-based suppliers for parts for its global products.
India's Federation of Automobile Dealers Associations said in a statement that it was shocked by Ford's move, saying the U.S company's decision only to compensate dealers who offer vehicle services to customers as well was "not enough".
There are 400 Ford outlets in India where dealers over time have invested 20 billion rupees ($272 million), the association said in a statement, adding that the automaker had been appointing new dealers until as recently as five months ago.
"Such dealers will be at the biggest financial loss in their entire life," it said.
($1 = 73.5740 Indian rupees)
Reporting by Aditi Shah; Editing by Sanjeev Miglani, Susan Fenton and David Clarke
Our Standards: The Thomson Reuters Trust Principles.
The third multinational to leave India in as many years, Ford had been struggling on the sales front, while a much-touted joint venture with Mahindra failed to take off
MG Arun
For several years, Ford India, the arm of the Michigan, US-based Ford Motor Company was identified in India through its “josh machine”, the Ford Ikon. Users of the Ikon vouched for its power and sturdiness. The success of the Ikon eclipsed the first product the company introduced in the Indian market as it re-entered it—the Ford Escort—after leaving India in 1953 following severe import restrictions. It returned to the Indian market in the avatar of Mahindra Ford India Limited, a 50:50 joint venture with Mahindra & Mahindra. But the Escort was also known as a dependable, sturdy vehicle and some of its owners (notably Wipro chairman Azim Premji) were known to use it for quite a number of years.
However, after just 25 years of operations—not too long for an auto manufacturer—Ford has decided to exit India. (Its rival, Japan’s Toyota has been in India since 1997, while Czech auto maker Skoda entered India in 2001.) Not that those years saw a smooth ride for the maker of iconic cars like the Model T, the Thunderbird and the Mustang. While it found big success in models such as the Ikon, the Endeavour and the EcoSport, others like the Mondeo and Fusion did not do as well as expected. The company had posted operating losses of over $2 billion (Rs 14,600 crore) and demand for its vehicles was weak. It could not find a sustainable path forward to long-term profitability, according to Ford India head Anurag Mehrotra. Calling off a joint venture (JV) it had entered with Mahindra & Mahindra in 2019 citing the Covid pandemic made matters worse for Ford. The JV was aimed at developing, marketing and distributing Ford vehicles in India and some Ford and Mahindra products in the high-growth international markets. With that JV off the cards, Ford’s chances of survival in the Indian market grew bleaker.
Ford will shut down its Sanand (Gujarat) plant by the fourth quarter of 2021 and end vehicle manufacturing and engineering at its Chennai plant by 2022. However, it will continue to sell cars in India through imports, and media reports say this will see the import of some high-end models such as the Mustang Mach-e, the Mustang and the Ranger. Ford will also provide continuing support to dealers to serve existing customers. Around 4,000 of its staff will be impacted by the decision.
The string of exits of big MNC firms from India does not augur well for the country, which has been seeing high unemployment numbers during the pandemic. General Motors’ exit in 2019 was driven by a decision to get out of non-profitable operations in a few regions including India, Russia and Western Europe. Harley Davidson left India as part of its ‘Rewire’ strategy to focus on select markets such as North America, Europe and some parts of Asia. The company had a loss of $96 million during the April-June 2020 period. This may not be a big loss in itself, but clearly, it did not seem to indicate good demand in the near future. The pandemic has only made matters worse for auto companies as they were forced to keep their retail outlets shut during the lockdown period.
The world over, auto companies are conducting big revamp exercises as the pandemic takes its toll on their revenues. They also need to invest heavily in new businesses like electric vehicles, which is where the future of the auto sector lies. According to the Paris-based International Energy Agency, after a decade of rapid growth, the number of electric cars globally hit the 10 million mark in 2020, a 43 per cent increase over 2019. Battery electric vehicles accounted for two-thirds of the new electric car registrations in 2020. China, with 4.5 million electric cars, has the largest fleet, though in 2020 Europe had the largest annual increase, reaching 3.2 million.
The Indian market is especially tough for these MNCs due to the dominance of the Japanese and Korean car makers. Maruti Suzuki has a roughly 48 per cent share in the Indian market, while Hyundai India has around 17 per cent. At the same time, demand has been muted. Auto sales have registered a combined annual growth rate of just 1.5 per cent in India over the past five years, upsetting the plans of MNCs who have heavily invested in the Indian markets. The government has announced a scrappage policy where it is mandatory to get one’s car inspected when its registration certificate expires. As per law, a registration certificate for a passenger vehicle is valid for 15 years from the date of issue. But there is no clarity whether this will have any significant impact on the sales of automobiles. In August this year, wholesale auto sales fell 12 per cent year-on-year, which the industry attributed to an ongoing shortage of semiconductors that has impacted output, and the high commodity prices that have increased vehicle costs. Add to this the rising cost of fuel in the past few months, and vehicle demand is expected to remain under pressure, forcing companies to rework their strategies in a ‘cost-conscious’ market like India.
Ford to stop making cars in India
By Aditi Shah and Aditya Kalra
September 9, 202110:59 AM EDTLast Updated 5 days ago
The U.S. carmaker entered India 25 years ago but still has less than 2% of the passenger vehicle market having struggled for years to win over Indian consumers and turn a profit.
Ford said in a statement on Thursday that it had accumulated operating losses of more than $2 billion in 10 years in India and demand for its new vehicles had been weak.
"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.
Ford's decision to cut its losses in India after leaving Brazil earlier this year underscores the pressures on global automakers to invest more in electric and automated vehicles, as well as connected vehicle technology.
Global automakers once fought to maintain a presence in every major market, and were willing to lose money to do so.
Now, companies such as Ford, General Motors (GM.N), Renault SA (RENA.PA)and Stellantis NV (STLA.MI) are walking away from money-losing ventures and redirecting capital to electrification and investment in technology they need to survive.
Ford's decision also comes as a setback for Indian Prime Minister Narendra Modi's "Make in India" campaign. It follows other U.S. vehicle makers such as General Motors (GM.N) and Harley Davidson (HOG.N) that have left India in recent years.
Mehrotra said Ford's decision was also reinforced by "persistent industry over capacity and lack of expected growth in India's car market".
India was expected to become the world's third-largest car market by 2020 after China and the United States with sales of some 5 million vehicles a year. Instead, sales have languished at about 3 million, still trailing Europe and Japan too.
India's car market is dominated by low-cost, mainly small cars made by Japan's Suzuki Motor Corp (7269.T). Its Maruti Suzuki brand accounts for seven of the top 10 sellers with South Korea's Hyundai Motor (005380.KS) making the other three.
WINDING DOWN
Ford has been escalating investment in electric vehicles (EVs) and advanced software. In May, it said it would boost spending on EVs by a third to $30 billion by 2030.
With so much on Ford Chief Executive Jim Farley's plate since he took charge last year and limited financial resources, India was a lower priority, a source previously told Reuters.
As part of the plan, Ford India will wind down operations at its factory in Sanand in the western state of Gujarat by the fourth quarter of 2021 and vehicle and engine manufacturing in its southern Indian plant in Chennai by 2022.
Ford has the capacity to produce about 440,000 cars in India a year across both plants but is only using about 25% of that, according to data intelligence company Global Data.
The U.S. automaker will continue to sell some of its cars in India through imports and it will also provide support to dealers to service existing customers, it said. About 4,000 employees are expected to be affected by its decision.
The decision to stop production came after Ford and India's Mahindra & Mahindra (MAHM.NS)failed to finalise a joint venture partnership that would have allowed Ford to continue making cars at a lower cost than now but cease its independent operations.
Ford said it had considered several other options for India including partnerships, platform sharing, contract manufacturing and the possibility of selling its manufacturing plants, a plan that is still under review.
Ford will continue to operate its engine factory in Sanand which exports engines for its Ranger pick-up trucks globally. It will also continue to rely on India-based suppliers for parts for its global products.
India's Federation of Automobile Dealers Associations said in a statement that it was shocked by Ford's move, saying the U.S company's decision only to compensate dealers who offer vehicle services to customers as well was "not enough".
There are 400 Ford outlets in India where dealers over time have invested 20 billion rupees ($272 million), the association said in a statement, adding that the automaker had been appointing new dealers until as recently as five months ago.
"Such dealers will be at the biggest financial loss in their entire life," it said.
($1 = 73.5740 Indian rupees)
Reporting by Aditi Shah; Editing by Sanjeev Miglani, Susan Fenton and David Clarke
Our Standards: The Thomson Reuters Trust Principles.
