Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Ford wakes up badly burnt from its India dream

Stock MarketsSep 17, 2021 08:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A visitor is reflected as he takes pictures of a Ford Aspire car during its launch in New Delhi, India, Oct. 4, 2018. REUTERS/Anushree Fadnavis/File Photo 2/2

By Aditi Shah

NEW DELHI (Reuters) - When Ford Motor (NYSE:F) Co built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom - the next China.

The economy had been liberalised in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy. Rising disposable income would help foreign carmakers to a market share of as much as 10%, forecasters said.

It never happened.

Last week, Ford took a $2 billion hit https://reut.rs/3nFLvnF to stop making cars in India, following compatriots General Motors Co (NYSE:GM) and Harley-Davidson Inc (NYSE:HOG) in closing factories in the country.

Among foreigners that remain, Japan's Nissan (OTC:NSANY) Motor Co Ltd and even Germany's Volkswagen AG (OTC:VWAGY) - the world's biggest automaker by sales - each hold less than 1% of a car market once forecast to be the third-largest by 2020, after China and the United States, with annual sales of 5 million.

Instead, sales have stagnated at about 3 million cars. The growth rate has slowed to 3.6% in the last decade versus 12% a decade earlier.

Ford's retreat marks the end of an Indian dream for U.S. carmakers. It also follows its exit from Brazil announced in January https://reut.rs/39fUnrq, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.

Analysts and executives said foreigners badly misjudged India's potential and underestimated the complexities of operating in a vast country that rewards domestic procurement.

Many failed to adapt to a preference for small, cheap, fuel-efficient cars that could bump over uneven roads without needing expensive repairs. In India, 95% of cars are priced below $20,000.

Lower tax on small cars also made it harder for makers of larger cars for Western markets to compete with small-car specialists such as Japan's Suzuki Motor Corp - controlling shareholder of Maruti Suzuki India Ltd, India's biggest carmaker by sales.

Of foreign carmakers that invested alone in India over the past 25 years, analysts said only South Korea's Hyundai Motor Co stands out as a success, mainly due to its wide portfolio of small cars and a grasp of what Indian buyers want.

"Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up, but the government failed to create that kind of environment and infrastructure," said Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for the auto industry.

EARLY MISSTEP

Some of Ford's missteps can be traced to when it drove into India in the mid-1990s alongside Hyundai. Whereas Hyundai entered with the small, affordable "Santro", Ford offered the "Escort" saloon, first launched in Europe in the 1960s.

The Escort's price shocked Indians used to Maruti Suzuki's more affordable prices, said former Ford India executive Vinay Piparsania.

Ford's narrow product range also made it hard to capitalise on the appeal won by its best-selling EcoSport and Endeavour sport utility vehicles (SUVs), said analyst Ammar Master at LMC.

The carmaker said it had considered bringing more models to India but determined it could not do so profitably.

"The struggle for many global brands has always been meeting India's price point because they brought global products that were developed for mature markets at a high-cost structure," said Master.

A peculiarity of the Indian market came in mid-2000 with a lower tax rate for cars measuring less than 4 metres (13.12 ft) in length. That left Ford and rivals building India-specific sub-4 metre saloons for which sales ultimately disappointed.

"U.S. manufacturers with large truck DNAs struggled to create a good and profitable small vehicle. Nobody got the product quite right and losses piled up," said JATO's Bhatia.

RISE AND FALL

Ford had excess capacity at its first India plant when it invested $1 billion on a second in 2015. It had planned to make India an export base and raise its share of a market projected to hit 7 million cars a year by 2020 and 9 million by 2025.

But the sales never followed and overall market growth stalled. Ford now utilises only about 20% of its combined annual capacity of 440,000 cars.

To use its excess capacity, Ford planned to build compact cars in India for emerging markets but shelved plans https://reut.rs/3tMSnAs in 2016 amid a global consumer preference shift to SUVs.

It changed its cost structure https://reut.rs/3hFDY4c in 2018 and the following year started work on a joint venture https://reut.rs/3zoxBsk with local peer Mahindra & Mahindra Ltd designed to reduce costs. Three years later, in December, the partners abandoned the idea https://reut.rs/3tOcGxw.

After sinking $2.5 billion in India since entry and burning another $2 billion over the past decade alone, Ford decided not to invest more.

"To continue investing ... we needed to show a path for a reasonable return on investment," Ford India head Anurag Mehrotra told reporters last week.

"Unfortunately, we are not able to do that."

Ford wakes up badly burnt from its India dream
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Joseph Lee
Joseph Lee Sep 17, 2021 9:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The US should invest more heavily in India as a counterweight to China. American management is great and Modi is also a great democratic leader. Marriage made in heaven.
Chris Sundo
Chris Sundo Sep 17, 2021 7:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sure beats me why an educated (researched) approach can't be tolerated. Re: 'the next China' .. LOL -- Not with India's caste system! Nothing will happen in India with the grossly outdated caste system. Wake up India! There is more life to live than hanging on to cows roaming the streets and the caste system. Mama mia, Wake up India!
Necleus Electron
Necleus Electron Sep 17, 2021 7:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
totally with the crap cast system! to me everyone of them look the same! their pride and ego issues are seriously ingrain in their daily lives! ridiculous!
vicky kumar
vicky kumar Sep 17, 2021 7:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
stupid Ford engineers made same vehicles without any specific changes, sucker cries
Necleus Electron
Necleus Electron Sep 17, 2021 6:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
cmon, in the first place no company shud invest in a country where basics like toilets and sanitation are an issue! ford would hv earn money selling bicycles instead.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email