Cracking the Indian Auto Market: Why Ford Lost and Hyundai Won
While Ford’s exit from the Indian market came as no surprise, it certainly highlighted the current sustainability and strategy issues in the Indian auto industry.
While a mediocre product line, failed strategic partnerships and overcapacity are cited as reasons for Ford’s declining profitability, a comparison with Hyundai Motor, which entered India around the same time (1998 ) than Ford, reveals interesting information on the entry and investment strategy of the American giant against the Korean giant.
Hyundai created a niche and was able to compete with Maruti in the small car segment initially using a combination of aggressive marketing and flexibility. Called judo entry strategy in game theory, entrants can capture a significant market share from incumbent players by being flexible, quick, and converting an opponent’s strength into weakness.
Maruti’s reliance on its entry-level car and a smaller product line had an impact on its market share. Hyundai won by leveraging technology, customer service, price sensitivity, and aggressive marketing. By committing to volumes of 50,000 cars per year, it has secured appropriate prices and quality from reliable and dedicated suppliers. Unlike Ford, Hyundai invested early on in a fully integrated facility that included engine machining, an automated welding shop, a captive foundry, and a heat treatment facility.
Ford entered the Indian market in 1995 as a joint venture with Mahindra, eventually changing its name to Ford India Limited in 1999. While making safety its prerogative, Ford did not commit to volumes from the start. high and could not compete on the price game or on the scale. its export volumes. It also shows that the Indian market is still in its infancy, with the consumer leaning more towards vehicles with many features, which may cause manufacturers to cut costs at the expense of safety and quality. Strict safety standards are therefore essential to achieve parity between manufacturers.
The auto industry was already in shock, with car sales dropping to their lowest level in 20 years between 2015 and 2020, made worse by the pandemic. Slow economic growth, rising fuel costs, rising cost of ownership, and regulatory standards are all factors influencing sales. Another drain is the high royalties paid by car manufacturers to their parent companies. Despite this, the Indian market remains one of the few major automotive markets and has seen many new players in recent times including Kia Motors and MG Motors, each seeking a share in an already saturated but dissatisfied market. Demand projections did not materialize as competition intensified, resulting in lower profitability.
Looking at past data, it’s obvious that Ford has been in the red for the past five years. Ford is not the first to leave the Indian market due to declining profitability. General Motors, Fiat India Limited and Eicher Polaris were also unable to survive the competitive landscape of the Indian market. Big players such as Daimler India Commercial Vehicles, backed by its parent company, have survived despite persistent losses due to aggressive sales and increasing market share.
Wanted: Political support
The industry has long demanded concrete policy action from the government. This demand, on the other hand, also demonstrates the need for continued economic growth, job creation and increased income levels to support various sectors.
Industry veteran RC Bhargava, speaking at the 61st Annual SIAM Convention, said the growth of the automotive industry in India was driven by customer aspirations to own a car rather than political planning . Recent developments and demand trends show that customer behavior continues to be a major influencing factor.
The auto industry wants to be in the driver’s seat of the economic engine driving India’s manufacturing aspirations contributing to jobs, income and foreign exchange. In turn, he expects major policy measures to increase vehicle penetration.
However, with the threat of climate change, increasing urban congestion, sustainability, and the push towards electric vehicles, the traditional auto industry is changing. Electric vehicles also face their share of challenges, including costs and supply chain barriers.
In this rapidly evolving scenario, what is needed is a holistic vision and far-reaching decisions from policy makers defining the roadmap for the entire automotive industry and clarity of its role. in the economy.
This needs to be seen in the context of the future of transport, mobility and the changing needs of the people in India. In the absence of this, the auto industry will continue to suffer the consequences of political decisions and be guided by customer trends.
Editors are faculty members in economics and operations management respectively at the IFMR Graduate School of Business, Krea University, Sri City, AP