Ford wakes up badly burnt from his Indian dream
NEW DELHI, Sept. 17 (Reuters) – When Ford Motor Co (FN) built its first plant in India in the mid-1990s, American automakers thought they were buying a boom – the next China.
The economy had been liberalized in 1991, the government was welcoming investors, and the middle class was to fuel a consumption frenzy. The increase in disposable income would help foreign automakers achieve a market share of up to 10%, forecasters say.
It never happened.
Ford took a $ 2 billion hit last week to stop manufacturing cars in India, following compatriots General Motors Co (GM.N) and Harley-Davidson Inc (HOG.N) shutting down factories in the country.
Among the foreigners that remain, Japan’s Nissan Motor Co Ltd (7201.T) and even Germany’s Volkswagen AG (VOWG_p.DE) – the world’s largest automaker in terms of sales – each hold less than 1% of a car market once slated to be the third. the largest by 2020, after China and the United States, with annual sales of 5 million.
Instead, sales have stagnated at around 3 million cars. The growth rate has slowed to 3.6% over the past decade from 12% a decade earlier.
Ford’s withdrawal marks the end of an Indian dream for American automakers. It also follows its release from Brazil announced in January, reflecting an industry pivot from emerging markets to what is now widely seen as a breakthrough investment in electric vehicles.
Analysts and executives said foreigners misjudged India’s potential and underestimated the complexity of operating in a vast country that rewards domestic purchases.
Many failed to adjust to a preference for inexpensive, fuel-efficient small cars that could run on uneven roads without requiring expensive repairs. In India, 95% of cars cost less than $ 20,000.
Lower taxes on small cars have 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 (7269.T) – majority shareholder of Maruti Suzuki India Ltd. (MRTI.NS), India’s largest automaker group by sales.
Among foreign automakers who have invested in India alone over the past 25 years, analysts said only South Korean company Hyundai Motor Co (005380.KS) stands out as a success, mainly because of its large portfolio. small cars and his understanding of what Indian buyers want. .
“Companies have invested in the misconception that India has great potential and the purchasing power of buyers will increase, but the government has failed to create this kind of environment and infrastructure,” said Ravi Bhatia, President for India at JATO Dynamics, a provider of market data for the automotive industry.
Some of Ford’s missteps can be traced back to its arrival in India in the mid-1990s alongside Hyundai. While Hyundai entered with the affordable little “Santro”, Ford offered the “Escort” sedan, first launched in Europe in the 1960s.
The Escort price shocked Indians accustomed to Maruti Suzuki’s more affordable prices, said Vinay Piparsania, former Ford India executive.
Ford’s narrow product lineup has also made it difficult to capitalize on the appeal of its top-selling EcoSport and Endeavor sport utility vehicles (SUVs), LMC analyst Ammar Master said.
The automaker said it had considered importing more models to India, but determined it could not do so cost-effectively.
“The struggle for many global brands has always been to meet India’s price point, as they bring in global products developed for mature markets at a high cost structure,” said Master.
A peculiarity of the Indian market emerged in mid-2000 with a lower tax rate for cars less than 4 meters (13.12 feet) in length. This left Ford and its rivals to build India-specific under 4-meter sedans that ultimately disappointed sales.
“American manufacturers with the DNA of large trucks have struggled to create a good, profitable small vehicle. Nobody got the right product and the losses piled up, ”said Bhatia of JATO.
ASCENT AND FALL
Ford had excess capacity at its first plant in India when it invested $ 1 billion in a second in 2015. It planned to make India an export base and increase its share of a market. which is expected to reach 7 million cars per year by 2020 and 9 million by 2025.
But sales never kept up and overall market growth stalled. Ford now only uses 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 scrapped plans in 2016 amid a shift in global consumer preferences for SUVs.
It changed its cost structure in 2018 and the following year began working on a joint venture with its local counterpart Mahindra & Mahindra Ltd (MAHM.NS) designed to reduce costs. Three years later, in December, the partners abandoned the idea.
After sinking $ 2.5 billion in India since joining and burning an additional $ 2 billion in the past decade alone, Ford has decided not to invest any more.
“To keep investing (…) we had to show the way for a reasonable return on investment,” Ford India manager Anurag Mehrotra told reporters last week.
“Unfortunately, we are unable to do this.”
Report by Aditi Shah; Editing by Kevin Krolicki and Christopher Cushing
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