Why Ford Left India?


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 or 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.

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