After almost 30 years and with only a toehold in the market to show for it, Ford faces crunch time in India, a country which has consistently thwarted the ambitions of global carmakers.
“We are assessing our footprint in India,” Lynn Antipas Tyson, Ford’s executive director of investor relations, told an investor conference this week.
“We want to make sure that we’re allocating capital to opportunities that are profitable.”
Ford’s three decades long investment in the country, which included a concerted push by former chief executive Alan Mulally, has left the Michigan carmaker with just 2 per cent of the Indian market.
The company announced in December that it was “actively evaluating” its operations there after a planned joint venture with Mahindra & Mahindra was scuttled on December 31, a year after it was announced.
Now Ford must decide whether to plough more money into Indian operations, begin manufacturing vehicles only for export, or to pull out of the country entirely. Ford took that route two months ago in Brazil.
“India has been this impossible nut to crack for the auto industry,” said Mike Ramsey, Gartner analyst. “I’m not sure [Ford] did anything disastrous. They’re just on the pile of companies that can’t quite figure out the right way to sell into this market.”
Global carmakers are drawn to the size of the Indian market — the fifth largest in the world by volume. India is expected to pass Japan in third place over the next decade, according to consultancy LMC Automotive, as its economy grows and incomes rise.
But most foreign carmakers have struggled to price their vehicles low enough to appeal beyond India’s urban elites. And high taxes, which can add up to about half the value of the vehicle, eat away at their profits.
Rivals Toyota, Honda and Renault are doing little better than Ford at 3 per cent market share apiece. Instead, nearly half of Indian car buyers turn to Maruti Suzuki, a 40-year-old Indian subsidiary of the Japanese carmaker, that dominates the market with efficient, low-priced vehicles.
Car groups generally have tried to sell products developed for other markets in India, said Ammar Master, LMC analyst. They invested more in other markets, particularly in China, sold too few models in India and did not refresh them often enough.
Ford did focus on the country for a few years about a decade ago. India became a priority after the company struggled to differentiate itself from competitors in a crowded Chinese market, Ramsey said.
It was a component of Mulally’s plan to take Ford to 8m sales globally, and the manufacturer invested $500m to double the production capacity at its Chennai plant to make the Ford Figo, a small saloon.
“We are entering the sweet spot of the Indian market,” Mulally said in 2009 at the launch in New Delhi. “It’s a game-changer for our Indian operation.”
But the sales did not materialise, forcing the company to shift towards making vehicles for export in 2013. Mulally’s successor, Mark Fields, said in 2016 that the company was re-evaluating its Indian operations, a reckoning that continued under Jim Hackett in 2017, and has now passed to new boss Jim Farley.
Ford’s India operations lost $23m in 2020, down from a loss of $804m in 2019. The company’s “strategy of mostly focusing on one product at a time — one-hit wonders, if you will — in India mirrors the approach of other global automakers,” Master said.
“Without the influx of a steady stream of new vehicles to enthuse Indian buyers, it is hard to win against well-entrenched market leader Maruti Suzuki and its horde of fiercely loyal buyers.”
Rishabh Sheth, the owner of a dealership in Mumbai that used to sell Ford cars, said the company faced challenges including slow product cycles, expensive maintenance and limited fuel efficiency. All this damped their appeal with value-conscious Indian consumers, he said.
“The cars were great to drive, but there was only a select audience to which this appealed,” he said. “People were looking at more fuel-efficient cars, cars that were comfortable and easy to maintain.”
Sunil Dutt used to drive a Ford in his previous job as a driver at an international non-profit organisation. But he argued that it was no match for competitors like Maruti Suzuki or Hyundai. He has personally owned two Maruti Suzukis.
Ford “is a good machine”, he said, but Maruti would win out any day. “Firstly, it’s a [local] brand. Secondly, it’s comfortable, it’s designed for Indian roads. And thirdly, the maintenance is available” from local mechanics.
Other vehicle manufacturers have abandoned the country when they failed to increase their market share.
General Motors gave up in 2017, and motorcycle manufacturer Harley-Davidson announced last year that it too would quit the country, the world’s largest two-wheeler market, after struggling to compete with local vintage brands like Royal Enfield.
MP Shyam, a Ford dealer in southern India who has been with the company since 1996, said he thought the company was committed to India for the long run.
“Like every business you go through some good cycles and bad cycles,” he said. “They’re not a typical American company where they come in and say, ‘Hey, things aren’t working out so we’re going to get out.’”
But analysts say this is one of the options Ford must be considering, even if it decides to relaunch in the country later.
LMC forecasts that, based on Ford’s current production outlook, the company will only use 20 per cent of its production capacity, which can churn out 440,000 vehicles in a year. Underused capacity is a major drag on profits in the motor industry.
“They can’t survive in India with those volumes,” Master said.
India’s potential as a growth market took a deeper hit in 2019 when the car market entered into its deepest slowdown in decades, prompted by everything from a broader economic slowdown to an explosion of car-sharing.
This, along with the longer-term changes such as the rise of electric vehicles, has prompted many to rethink their approach to the country, said Puneet Gupta, analyst at IHS Markit.
“It’s not only Ford which is revisiting their India strategy. Every [carmaker] today is revisiting their India strategy,” he said. “The next two decades are going to be different from the last two decades.”
