By : SHWETA BHANOT MEHROTRA
It is interesting to see how the developed world auto brands such as General Motors (GM) and Ford have struggled to make it big in a volume-driven and evolving market such as India. The recent announcement by Ford to wrap up its manufacturing operations in India thereby bringing its current model line up to a grinding halt comes as no surprise. In fact, many saw this coming after the Ford-M&M partnership was called off earlier this year.
A microscopic view on why American brands such as GM and Ford have failed in India highlights the integral problem of their strategy – to go slow and focus on one product at a time, besides, a clear absence of a well-thought-out product, cost, and operational strategy – designed specifically for the Indian market.
“Both GM and Ford had put more emphasis on other global markets (such as China for instance) than on India, which impacted investment decisions, and subsequently new product development and introductions specifically for the Indian market. A lack of product updates and expansion is also why both automakers could not win over more buyers, especially when rivals were constantly introducing new vehicles and variants to keep buyers glued to their brands,” explains Ammar Master, Senior Manager, Asia Pacific Vehicle Forecasts, LMC Automotive.
Master says, “The strategy of bringing global products lock, stock and barrel with few India-specific modifications also did not work in India, as buyers here had distinct tastes and requirements. Developed at higher costs, the global products also could not be priced competitively enough to compete effectively with players that had higher localization rates and lower production costs and more affordable prices.”
It is this lack of continuous and quick expansion of product range that made it difficult for brands such as Ford to compete against rivals such as Maruti-Suzuki and Hyundai Motor India. Besides, the brand also struggled against new entrants such as MG Motors and Kia India. The singularly focused India strategy with diversified product range at highly competitive pricing has been at the core of these brands’ success.
“Ford was the pioneer in the sub-compact SUV segment and disrupted the Indian market with its EcoSport. However, despite being technically competent and ‘deserving’, the company’s vehicles lost their charm in India,” says Bakar Sadik Agwan, Senior Automotive Consulting Analyst, GlobalData. He says that Ford’s exit is a major blow to the Indian automotive industry marking the end of its almost three-decade long presence in the country.
“While Covid-19 and economic woes hampered consumer sentiments, major regulatory reforms are to be blamed for Ford’s decline. Ford also lost ground to new competing automakers. Its recent strategies such as price promotions, face-lift upgrades, launch of automatic variants failed to lure Indian customers,” says Agwan. The company recently cut prices by 4.5% and also launched product updates, new vehicles and took measures to improve capacity utilization and to boost exports. It also looked at displaying its range without increasing the price of vehicles in India.
“India does not really fit into Ford’s global strategy as of now. The company is looking at [going] all- electric by 2025 and talking about autonomous and connected cars. India is still [a] couple of years away from it,” says Puneet Gupta, Associate Director, IHS Markit. It is in line with this global strategy that Ford has stated that it wishes to pursue a much higher sustainable margin on a global scale, which implies somewhat tougher choices about future investment.
Gupta also highlights the impact of regulatory policies as one factor behind the American brands shutting shop. “For global makers to adapt to the sub-4 meter criteria for a market that draws them low profitability and low volumes makes decision making and investment plans painful,” he says. “With the exit of GM and now Ford, it is a cause of concern,” he says. The Indian market has been miniscule for the brand as compared to other world markets. According to GlobalData, Ford, Honda, Toyota, Nissan and others also hold a miniscule market share, less than 3%, in the world’s fifth-largest market, in terms of sales.
“Strategically, Ford has decided to concentrate on the markets of North America, China, and West Europe. In the latter two, it is also struggling, but the exit from BRI (Brazil, Russia and India) allows it to concentrate resources on turning round those two markets. In all of this, we must remember the rivalry between GM and Ford. GM has already pulled back from markets such as West Europe, Russia and India that it came to view as a distraction. It has been rewarded by Wall Street for this focus on major markets and pushing of its case narrative with its share price significantly outperforming Ford's over the past five years,” says Calum Mcrae, Head, Automotive Research, GlobalData.
Dr. Wilfried G Aulbur, Senior Partner, Roland Berger, further goes on to explain how “India has proven to be a difficult market for many foreign players. Indian consumers tend to buy cars according to a complex value equation in which purchasing cost, total cost of ownership, aspirational appeal, vehicle functionality, etc. play a significant role. This varies across different consumer segments.”
“Solving this equation requires a clear strategy, a constant focus on cost and operational excellence, a solid product line up that is kept fresh, a robust network of supplier and dealer partners, agility and the right to take independent actions and decisions for the Indian market.” Indicating that the Indian market is still small in international comparisons and has not developed as rapidly as was hoped for, Aulbur, further states that it is because of these reasons that it becomes challenging to continue to justify investments in India that have little chance of yielding returns in the mid-term to potentially long-term.
“Ford now joins the other American auto giant, GM, which had a similar fate in India. However, a lesson learnt from it is that Ford decided on a complete production shut down with deadlines at both its location facilities – unlike GM, which kept the production running several years for its export markets, which eventually came to an end in 2020,” says Agwan.
Anurag Mehrotra, President and MD, Ford India, says, “Ford has a long and proud history in India. We are committed to taking care of our customers and working closely with employees, unions, dealers and suppliers to care for those affected by the restructuring.”
According to Ford, the company will wind down its operations at their Sanand plant by Q4 2021, followed by the Chennai plant in Q2 2022. The company will continue sales of current products such as Figo, Aspire, Freestyle, EcoSport and Endeavour till existing dealer inventories are sold off. However, the company will retain its engine plant in Sanand. And while Ford has already stated that it will be importing the Mustang coupe, a niche product, the introduction of EVs could be far in the future.
For now, Ford India aims to maintain spare part depots in Delhi, Chennai, Mumbai, Sanand and Kolkata and says that it will work closely with its dealer network to restructure and help facilitate their transition from sales and service to parts and service support.
Although Ford announced to continue selling its niche products – Mustang and Endeavour, “the exit will significantly plunge sales volumes with immediate effect and adversely affect 4,000 jobs and its country-wide dealership network,” says Agwan.
According to SIAM’s August 2021 report, Ford India, manufactured 39,337 units during April to August 2021-22. Total domestic sales for the same period stood at 15, 818 units, and exports higher at 18,022 units.
Ford India said that it took these restructuring actions after investigating several options, including partnerships, platform sharing, contract manufacturing with other OEMs, and the possibility of selling its manufacturing plants, which is still under consideration.
The company plans to grow its Ford Business Solutions team in India and provide more opportunities for software developers, data scientists, R&D engineers, and finance and accounting professionals, in support of the Ford+ plan to transform and modernize Ford globally, the company said through a statement.
“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,” says Jim Farley, President and CEO President and CEO, Ford Motor Company “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,” says Farley.
“The exit is an ‘alarm bell’ for other foreign automakers in India. The market does not stand still in India, or indeed anywhere, and companies will need to work strongly on their strategic priorities to make a difference in India,” says Agwan.
Ford’s first India association was with M&M when it introduced the Escort, in 1995, and again in 2018 to bring products faster to the market via a local partner which didn’t go as planned. Their demand to have more control on decisions and strategies in the joint venture, it is believed, put them in a tight spot with the local partner who preferred parting ways rather than bending backwards for the foreign brand.