Ford too drives out: Why are global majors struggling in India?

Another global automobile major is leaving the shores of India.

In a statement that took many by surprise, Ford said it is ending manufacturing operations in Sanand, Gujarat, by the fourth quarter of 2021, and vehicle and engine manufacturing in Chennai by the second quarter of 2022, the company said on Thursday.

Having entered India 25 years ago, Ford still has fewer than 2% of the passenger vehicle market.

The decision will impact over 4,000 employees and around 150 dealer principals who operate over 300 outlets. Automobile dealers’ body Federation of Automobile Dealers Associations (FADA) said dealers have invested over Rs 2,000 crore to set up infrastructure and over 40,000 jobs are at stake.

After General Motors, Man Trucks, Harley Davidson, UM Lohia and multiple fly-by-night electric vehicle players, Ford India is the fifth biggest exit from Indian markets in the last five years.

Majors such as Toyota, Volkswagen, General Motors, Ford and Renault-Nissan have been struggling in India where Maruti controls the lion’s share of the sales.

So why are global automobile majors struggling in India?

Industry experts say it is the lack of understanding of the Indian market that bleeds global majors. Also, they say foreign companies should focus on small cars, something which Maruti is relentlessly pursuing. The proof of the pudding is in the eating: right from 800 to Alto to WagonR to Swift. Decades have passed by and bigger models came in, but Maruti never pushed the small cars down the barrel.

“India is predominantly a small car market. These global majors are traditionally not very strong in the small-car segments and they have not been able to have very strong small car production and distribution strategy for India,” Abdul Majeed, partner and automotive expert at Price Waterhouse,  told Economic Times.

On the contrary, global players were reluctant to take the small car plunge. “The proposals for emerging market cars or developing market small cars always end up in the dustbin and hence these companies keep struggling to make a dent in the (Indian) market,” another veteran told ET.

The Ford story has been no different.

“India has been this impossible nut to crack for the auto industry. I’m not sure [Ford] did anything disastrous. They’re just on the pile of companies that can’t quite figure out the right way to sell into this market,” Mike Ramsey, Gartner analyst told Financial Times.

Affordable service and maintenance also play a crucial role, where again Maruti scores big.

“With Maruti, maintenance and repair are quite easy. Even local mechanics are comfortable with Maruti vehicles. Also, the long list of service centres comes handy for customers. With Ford and even Volkswagen, it’s tough to even spot a service centre, especially at two-three-tier cities,” says an automobile veteran.

What Ford says

Following accumulated operating losses of more than $2 billion over the last 10 years and a $0.8 billion non-operating write-down of assets in 2019, Ford has been forced to restructure to create a sustainably profitable business in India, the company said in a statement.

Also read: As India sales hit low gear, Ford may use factories to make e-vehicles for Ola

Jim Farley, CEO and president of Ford Motor Company, said: “As part of our Ford+ plan, we are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas. Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years, and demand for new vehicles has been much weaker than forecast.”

Dealers in the lurch

Ford dealers in India are staring at huge losses with the automaker deciding to shut production in the country with immediate effect, automobile dealers’ body FADA said on Thursday.

Terming the company decision shocking, the industry body noted that the dealers have invested over Rs 2,000 crore in creating sales infrastructure while employing around 40,000 people across the country.

“The auto retail fraternity is really shocked to hear another Ford India’s announcement where it has said that it will shut down production with immediate effect,” FADA President Vinkesh Gulati said.

There are 170 dealers who in turn have 391 outlets and have invested Rs 2,000 crore for setting up their dealerships, he noted.

Gulati added that Ford India dealers currently hold around 1,000 vehicles worth Rs 150 crore via inventory funding from reputed banks.

“The dealers also carry demo vehicles which run into the 100s in numbers. Moreover, the company also appointed multiple dealers until five months back. Such dealers will be at the biggest financial loss in their entire life!” he stated.

Gulati said the FADA has been for long requesting the Centre to roll out Franchisee Protection Act as without that auto dealers are not adequately compensated like their counterparts in other countries like Mexico, Brazil, Russia, China, Indonesia, Malaysia, and Japan.

After General Motors, Man Trucks, Harley Davidson, UM Lohia and multiple fly by night electric vehicle players, Ford India is the fifth biggest exit from Indian markets since 2017, Gulati noted.

The Parliamentary Committee on Industry, in its report in December 2020, had recommended the enactment of the Franchise Protection Act for automobile dealers in the country, he added.

Its decision will impact over 4,000 employees and around 150 dealer principals who operate over 300 outlets. It will, however, continue to manufacture engines from its Sanand plant which will be exported to the companys global operations.

With shutting down of the vehicle manufacturing operations, the automaker will stop selling vehicles such as the EcoSport, Figo, Endeavour, Freestyle, and Aspire, which are produced from these plants.

Ford said it will maintain parts depots in Delhi, Chennai, Mumbai, Sanand, and Kolkata and will work closely with its dealer network to restructure and help facilitate their transition from sales and service to parts and service support. It will continue full customer support operations for these vehicles with service, aftermarket parts, and warranty coverage, the company added.ut: Why are global majors struggling in India?