- Saturday, April 27, 2024
By: Shubham Ghosh
THE exit of American auto major Ford from India last week is believed to be a major blow to both the manufacturer and the automobile market in India, something that experts thought was set to become the next China following the liberalisation of 1991.
When Ford Motor Co. set up its first factor in India in the mid-1990s, American car manufacturers believed they were entering a grand phase. The Indian government was also welcoming investors around that time and the country’s middle-class was expected to fuel the consumption. Rising disposable incomes of Indians would help foreign carmakers to a market share of 10 per cent, it was predicted.
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But the dream remained a dream.
Last week, Ford decided to halt producing cars in India after taking a $2 billion hit and its decision came in the wake of similar moves made by compatriots General Motors and Harley-Davidson.
Other major foreign makers that still remain in India – Japan’s Nissan Motor and Germany’s Volkswagen – also hold less than one per cent of the car market each. India’s auto market was predicted to be the third-largest by 2020, only after China and the United States, with annual sales of five million.
But the figures have stagnated at about three million and the growth rate has slumped to 3.6 per cent in the last decade, compared to 12 per cent a decade ago, Reuters reported.
Analysts are now saying that the foreign makers misjudged India’s potential and underestimated the complexities of running operations in a vast country that rewards domestic procurement, the Reuters report added.
Many of these makers could not adapt to the taste of the Indian customers for small, cheap and fuel-efficient cars that could survive uneven roads without requiring expensive repairs. An overwhelming 95 per cent of cars in India are priced at less than $20,000.
Lower tax on small cars also makes it tough for those making large ones for western markets to compete with small-car specialists, like Japan’s Suzuki Motor Corp, controlling the shareholder of Maruti Suzuki Ltd, India’s biggest carmaker in terms of sales.
Of the foreign makers that invested alone in the Indian market over the past two-and-half decades, analysts said only South Korea’s Hyundai Motor Co tasted success, thanks to its stable of small cars and an understanding of what the buyers in India look for.
“Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up, but the government failed to create that kind of environment and infrastructure,” Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for the auto industry, was quoted as saying by Reuters.
To explain some of Ford’s missteps while venturing into the Indian market, while Hyundai brought the small, affordable ‘Santro’ which became an instant hit with the Indian buyers, the US maker offered the ‘Escort’ saloon, which was first launched in Europe in the 1960s.
The price of Escort shocked the Indian buyers who are used to Maruti Suzuki’s affordable prices, according to Vinay Piparsania, a former Ford Indian executive.
Ford’s narrow product range also made it difficult to capitalise on the appeal won by its sport utility vehicles — EcoSport and Endeavour — Ammar Master, an analyst at LMC, said.
According to Ford, it had considered bringing more models to India but saw it could not do so profitably. “The struggle for many global brands has always been meeting India’s price point because they brought global products that were developed for mature markets at a high-cost structure,” Master said.
The Indian market saw in mid-2000 a lower tax rate for cars measuring less than four metres in length. That left Ford and rivals building India-specific sub-4 metre saloons but the sales ultimately disappointed
“U.S. manufacturers with large truck DNAs struggled to create a good and profitable small vehicle. Nobody got the product quite right and losses piled up,” said Bhatia from JATO.
Ford had excess capacity at its first India plant when it invested $1 billion on a second in 2015. It had planned to make India an export base and raise its share of a market projected to hit seven million cars a year by 2020 and nine million by 2025.
But the sales never followed and overall market growth hit stagnation. Ford now utilises only about 20 per cent of its combined annual capacity of 440,000 cars.
It had planned to build compact cars in India for emerging markets but the plans were shelved in 2016 when the global consumer preference shifted to SUVs.
The car-maker changed its cost structure in 2018 and in 2019, it started work on a joint venture with Indian company Mahindra & Mahindra Ltd to reduce costs. But a few years later, the partners abandoned the idea.
Ford thereafter decided to not to invest any more in India.
