Why Ford’s Indian Dreams Turned into Nightmares

New Delhi — when Ford Motor Co built its first factory in India in the mid-1990s. US car makers believed they were in a China..

The economy was liberalized in 1991, the government welcomed investors, and the middle class was expected to fuel consumption frenzy. Increased disposable income will help foreign automakers gain as much as 10% market share, predictors said.

It never happened.

last week, Ford was hit by $ 2 billion to stop building cars in India, Following the compatriots General Motors Co., Ltd. When Harley-Davidson Inc to close domestic factories.

Among the remaining foreigners, Japan Nissan Motor Ltd and even Germany Volkswagen AG — The World’s Largest Automaker by Sales — Each 1By 2020, the percentage of the automobile market is projected to be the third largest after China and the United States, with annual sales of 5 million units.

Instead, sales are stagnant at around 3 million units. Growth has slowed to 3.6% in the last decade, but 10 years ago it was 12%.

Ford’s withdrawal marks the end of India’s dream for US automakers. It also reflects the industry’s pivot to the now widespread investment from emerging markets, following the withdrawal from Brazil announced in January. Electric car..

Analysts and executives said foreigners have terribly misunderstood India’s potential and underestimated the complexity of doing business in a vast country that rewards domestic procurement.

Many couldn’t adapt to the taste of small, cheap and fuel-efficient cars that could hit bumpy roads without the need for expensive things. repair.. 95% in India Car price Less than $ 20,000.

Low taxes on small cars also made it difficult for heavy car manufacturers for the western market to compete with small car professionals such as: Japanese Suzuki Motor Corporation — Mulch’s controlling shareholder Suzuki India Ltd, India’s largest automobile manufacturer.

Analysts of South Korea’s foreign automakers who have invested alone in India over the last 25 years Hyundai Motor Co stands out as a success, primarily due to its extensive portfolio of compact cars and its understanding of what Indian buyers want.

“Companies have invested in the misconception that India has great potential and increased purchasing power, but the government has failed to build such an environment and infrastructure,” said Ravi Bhatia, India’s president of JATO Dynamics. .. Market data for the automobile industry.

Early failure

Some of Ford’s failures can be traced back to the mid-1990s when they drove to India alongside Hyundai. Hyundai came in with a small and affordable “Santoro”, while Ford said “escort“Saloon, first launched in Europe in the 1960s.

The price of the escort shocked Indians who were accustomed to the more affordable prices of Martis Suzuki, said former Ford India executive Vinai Pi Parsania.

Ford’s narrow product range also made it difficult to take advantage of the appeal gained by its bestsellers. Ecosport And effort Sport utility vehicle (SUV), said LMC analyst Ammermaster.

The automaker said it considered bringing more models to India but decided it couldn’t make a profit.

“Many global brand struggles have always met Indian prices because they have brought global products developed for mature markets in a high cost structure,” Master said.

A characteristic of the Indian market occurred in mid-2000, with lower tax rates on vehicles less than 4 meters (13.12 feet) in length. As a result, Ford and its rivals produced India’s unique sedan of less than 4 meters, which ultimately disappointed sales.

“Large US manufacturer truck DNA struggled to create a great, profitable compact car. No one could understand the product perfectly correctly, and the losses were piled up. “

Up and down

Ford had surplus capacity at its first Indian plant when it invested $ 1 billion per second in 2015. With India as an export base, 7 million units a year by 2020, 2025.

However, sales never continued and overall market growth stagnated. Ford currently uses only about 20% of its annual production capacity of 440,000 units.

To take advantage of its surplus capacity, Ford planned to build a compact car in India for emerging markets, but shelved the plan in 2016 as global consumer preferences shift to SUVs. bottom.

We changed the cost structure in 2018, and the following year we started a joint venture with our local competitor Mahindra & Mahindra Ltd to reduce costs. Three years later, in December, the partner abandoned the idea.

After sinking $ 2.5 billion in India since entering the market and burning another $ 12 For $ 1 billion in the last decade alone, Ford has decided not to invest any more.

“To continue investing, we needed to show a reasonable return on investment path,” Ford India’s Anurag Melotrahead told reporters last week.

“Unfortunately, you can’t.”

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Why Ford’s Indian Dreams Turned into Nightmares

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