NEW DELHI—When Ford Motor Company’s Early Misstep built its first factory in India in the mid-1990s, American carmakers believed they were fast buying into the next China.
The economy was liberalized in 1991, the government was welcoming to investors, and the middle class was expected to fuel a consumption frenzy. Forecasters said rising disposable income would help foreign carmakers garner up to 10 per cent market share.
It never happened.
Last week, Ford took a $2 billion hit to stop making cars in India, after compatriots General Motors Co and Harley-Davidson Inc closed factories in the country.
Among foreigners, Japan’s Nissan Motor Co., and even Germany’s Volkswagen AG—the world’s largest automaker by sales—each accounted for less than 1 percent of the car market. It is projected to be the third largest by 2020 after China and United. State with annual sales of 5 million.
Instead, sales have stalled at around 3 million cars. The growth rate has slowed down to 3.6 per cent in the last decade from 12 per cent a decade ago.
Ford’s retreat marks the end of an Indian dream for American carmakers. It also follows Brazil’s exit announced in January, marking the industry’s pivot from emerging markets to what is now widely seen as a make-or-break investment in electric vehicles.
Analysts and officials said foreigners misjudged India’s potential and underestimated the complexities of operating in the vast country that rewards domestic purchases.
Many failed to adapt to the preference for smaller, cheaper, fuel-efficient cars that could hit uneven roads without needing expensive repairs. In India, 95 percent of cars cost less than $20,000.
Lower taxes on small cars made it difficult for large car makers for Western markets to compete with small car specialists such as Suzuki Motor Corporation of Japan, which is part of Maruti Suzuki India Limited, India’s largest carmaker by sales. are shareholders.
Of foreign carmakers alone investing in India in the past 25 years, analysts said only South Korea’s Hyundai Motor Company has been successful, largely due to its wide portfolio of small cars and its understanding of what Indian buyers want. Is.
“Companies invested on the illusion that India would have huge potential and buying power of buyers would increase, but the government failed to create that kind of environment and infrastructure,” said Ravi Bhatia, president of India at JATO Dynamics. Market statistics for the auto industry.
quick wrong move
Some of Ford’s faults can be traced back to when Hyundai arrived in India in the mid-1990s. While Hyundai entered with the smaller, economical “Santro”, Ford offered the “Escort” saloon, which was first launched in Europe in the 1960s.
Former Ford India executive Vinay Piparsania said the Escort’s price surprised Indians, who were accustomed to Maruti Suzuki’s more affordable prices.
LMC analyst Ammar Master said Ford’s narrow product range makes it difficult to capitalize on the appeal won by its best-selling EcoSport and Endeavor sport utility vehicles (SUVs).
The carmaker said it had considered bringing more models to India, but determined it could not do so profitably.
“The struggle for many global brands has always been to meet India’s price point as they brought global products that were developed at a high cost framework for mature markets,” said Master.
A feature of the Indian market came in the mid-2000s with a lower tax rate for cars less than 4 m (13.12 ft) in length. This left Ford and rivals to build an India-specific sub-4 meter saloon, for which sales ultimately disappointed.
“American manufacturers with big truck DNA struggled to make a good and profitable small vehicle. Nobody got the product right and the losses kept piling up,” said Jato’s Bhatia.
rise and fall
Ford had excess capacity at its first India plant when it invested $1 billion a second in 2015. It had planned to make India an export base and increase its market share projected to hit 7 million cars a year by 2020. 2025.
But sales never materialized and overall market growth stalled. Ford now uses only about 20 percent of its combined annual capacity of 440,000 cars.
To harness its spare capacity, Ford planned to build compact cars in India for emerging markets, but shelved plans in 2016 amid a global consumer preference shift for SUVs.
It replaced its cost structure with the local counterpart Mahindra & Mahindra Ltd., designed to reduce costs. Three years later, in December, the partners abandoned the idea.
After sinking $2.5 billion since its entry into India and burning $2 billion in the past decade alone, Ford decided not to invest any more.
Ford India chief Anurag Mehrotra told reporters last week, “We need to show the way for a fair return on investment in order to continue investing.”
“Unfortunately, we haven’t been able to do that.”
by Aditi Shah
This News Originally From – The Epoch Times