Sunday 19 September 2021
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Ford Failed In India For Its Own Mistakes

Sugato Hazrahttps://www.sirfnews.com/
Public policy analyst based in Delhi

Ford has failed in India. It accepted its defeat in the Indian market after struggling for 25 years. How is the company faring in its home market? Ford automobiles are built for America. It is America’s most storied automobile company. But judged by its record, it is not exactly in vehicles small cars or mid-sized sedans market. In the US last month (August 2021), Ford sold 1,24,176 vehicles. Out of these, 2,369 were cars. Adding 2,153 EcoSport sold during the month, Ford’s total car sales in the US in August stood at 4,522 cars. The remaining nearly 1,20,000 vehicles sold in August were trucks and large SUVs. In the same month, American consumers bought 69,833 mid-sized cars, with Toyota selling more than 31,000 units. Ford makes vehicles for America while American consumers buy some other car brands like Toyota, Honda, Hyundai and Kia. Perhaps to address its loss of status in the US market, Ford is rethinking its strategy and exiting from India, one of the world’s top five car markets.

First, Motors left a few years ago and now it is Ford. Those who love to find faults with the Indian policies also put Harley-Davidson’s decision to wrap up from here. If marquee American brands leave the country, there must be something wrong with our policies? Or perhaps the way we buy cars? Ours is a market for small cars, unlike in the US. In August, India bought 2,60,000 cars, but we poor Indians have yet to catch up with the taste of Americans! Till that time arrives, India needs to live with the poor Asian carmakers from Japan, South Korea or homegrown Mahindra and Tata. Ford is not meant for India. Right? 

India’s fascination with fellow Asian car makers is best explained by the success of Hyundai, which entered the country in the same year as Ford. In 2020-21, Hyundai sold 4,14,000 vehicles while Ford could touch 48,042 units — a number that dropped sharply in the first half of 2021-22. Now that it has announced its departure, few Indians will opt for Ford vehicles. Ford was using barely 20% of its installed capacity of 4,00,000 cars a year, not a comforting signal for its investment. It had sunk in Rs 2,000 crore in building 170 dealerships, recorded an accumulated operating losses of more than $ 2 billion over the past 10 years and a $ 0.8 billion non-operating write-down of assets in 2019. With not so roaring a business at the home market, Ford had to bite the bullet as far as Indian business is concerned.

The decision came about eight months after its lifeline, a possible joint venture with Mahindra, did not take off. Ford had entered India in collaboration with Mahindra, a 50:50 partnership that did not satisfy the brand ego of Ford. Ford and Mahindra had proposed a joint venture to develop at least three sport-utility vehicles (SUVs) for India and emerging markets and share suppliers, powertrains and technology. The deal, which would have ended most of Ford’s independent operations in India, was called off on 31 December 2020. Later, Ford realised that India was a price-sensitive market where small and medium-sized cars were in demand, unlike the big muscular vehicles and pickup vans as in the US. Ford could not think global beyond Detroit though its CEO Jim Farley comes to India for charity work every year. Evidently, for Harley and Ford executives, India is a place for charity and perhaps cheap labour, a feeling that cannot serve in capturing a market. It did not examine the market trend in detail where the global major car makers like Toyota, Volkswagen and Ford could take a mere 6% of the fifth-largest market. Toyota has partnered with Maruti to source vehicles that India drives. New entrant Kia has notched up good numbers, challenging the homegrown Mahindra. It is a market for those who are not arrogant with their history and do not want to shove whatever they produce down to Indian garages but produce for the market.

The late realisation saw Ford keen to accept a fresh partnership with Mahindra where Ford would have been a minority 49% owner. But Mahindra let it lapse, realising the changing market, post Covid-19 as well as India’s slow but steady transition to electric vehicles. Mahindra is now working on the last-mile delivery of electric vehicles. Clearly a JV with Ford, not so appreciated a brand in India, would not suit Mahindra’s future business plan. For Ford, as usual, there was no fallback option other than moving out of the country altogether. Ford, successful briefly only in few cars like Ikon, Figo and EcoSport failed to sustain the customer and surrendered to the competition. Ford’s failure is a business failure and has nothing to do with the government policy or Indian market failure. Anurag Mehrotra, Ford India’s president and managing director, admitted the failure and said that, saddled with years of accumulated losses and overcapacity in its plant, Ford did not have any sustainable path forward to long-term profitability and decided to close its manufacturing units. Of course, he had mentioned that Ford did not see the “expected growth” in the Indian auto market. Its expectations were rather wishful, as Maruti, Hyundai and new entrant Kia all are doing well in the same market.

Ford is not exiting India completely. In its statement, the company said that it would focus on growing its Ford Business Solutions capabilities and team in the country, as well as engineering and engine manufacturing for export. ‘With more than 11,000 team members currently in India, Ford Business Solutions plans to expand to provide more opportunities for software developers, data scientists, R&D engineers, and finance and accounting professionals.’ In other words, Ford will not manufacture in India for the Indian market, which did not behave the way the big American company felt it should.

Ford’s failure in India is a lesson for the American business. Every market has its special requirement. Respect that and have a business plan to suit the market. The haughty Yankee Doodle cannot come riding on either a Ford or a Harley and show their feather stuck on the cap to win over the consumer. No point in saying that Indian consumers are -conscious. Anybody spending money will like to have the money’s worth. Study the consumer carefully before making big claims like the brand will change the habit of the consumers, as Kellogg’s intended to teach Indians how to have breakfast. Failure of Ford, Harley and GM is their assessment and management failure. These companies cannot use Washington’s muscle, which anyway is weakening of late, and their lobbying capacity through sponsored media, think thank and NGOs to change the market dynamics and emerge as successful. Recent attempts by certain vaccine manufacturers from the US is another example. The fault lies, to sum up, not in our government or policy but in their business management capability.

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