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Ford wakes up badly burnt from its India dream By Reuters


© Reuters. FILEPHOTO: A visiting photographer takes photographs of a Ford Aspire vehicle during the launch event in New Delhi (India), Oct. 4, 2018. REUTERS/Anushree Fadnavis/File Photo


By Aditi Shah

NEW DELHI (Reuters) – When Ford Motor (NYSE:) Co built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom – the next China.

In 1991 the economy was liberalized and investors were welcome. The middle class was anticipated to drive a frenzy of consumption. Forecasters stated that rising disposable income would allow foreign carmakers to capture as much as 10% of the market.

This never took place.

Last week, Ford took a $2 billion hit to stop making cars in India, following compatriots General Motors Co (NYSE:) and Harley-Davidson Inc (NYSE:) in closing factories in the country.

Japan’s Nissan Motor Co Ltd (OTC) and Germany’s Volkswagen AG(OTC) are the only foreigners left. They each have less than 1% share of the car market that was once estimated to reach 5 million annual sales by 2020.

Sales have stagnated at 3 million vehicles. Instead of 12% in a decade ago, the growth rate for 2010 has been 3.6%.

Ford’s departure marks the end to an Indian dream that U.S. carmakers had hoped for. It also follows its exit from Brazil announced in January, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.

According to executives and analysts, foreigners misjudged India’s capabilities and underestimated the difficulties of doing business in India.

Many were unable to accept a small, inexpensive, fuel-efficient car that can bump across uneven roads and not require costly repairs. India’s average car price is below $25,000, with 95% of Indian cars priced under $20,000.

India has 95% of cars priced below $20,000. This makes it difficult for foreign carmakers to sell larger vehicles for Western markets.

According to analysts, South Korea’s Hyundai Motor Co is the most successful foreign carmaker that has invested in India for 25 years. Its large selection of small cars, and its understanding of Indian customers are what made it stand out.

Ravi Bhatia is the president of JATO Dynamics India. The company provides market data and analysis for the automobile industry.


Some of Ford’s missteps can be traced to when it drove into India in the mid-1990s alongside Hyundai. Hyundai came with the affordable, small “Santro”, but Ford brought the first-ever European “Escort” saloon.

Vinay Pipporansania, an ex-Ford India executive, commented that Indians were shocked by the Escort’s high price. They had grown up with Maruti Suzuki’s cheaper prices.

According to analyst Ammar Master of LMC, Ford’s small product portfolio made it challenging for the company to profit from the success enjoyed by EcoSport (and Endeavour) sport utility vehicles (SUVs).

According to Ford, it considered adding more Indian models but decided it couldn’t make a profit.

Master said that it has been difficult for global brands to meet India’s cost point since they have brought products from global markets, which were designed and developed for mature markets.

Mid-2000 saw an Indian market with a reduced tax rate on cars less than four metres (13.12 ft). Ford and other competitors were forced to build sub-4m saloons in India for this market. These vehicles did not sell well.

American manufacturers have large truck DNAs and struggled to produce a profitable, small-sized vehicle. Bhatia from JATO stated that no one got the product right and it was difficult to make a profit.


Ford had excess capacity at its first India plant when it invested $1 billion on a second in 2015. Ford had intended to increase India’s export potential and expand its market share in a country that is expected to produce 7 million vehicles per year by 2020, and 9 million by 2025.

The sales didn’t follow, and the overall market growth stagnated. Ford currently uses only 20% of the combined annual 440,000 car production capacity.

To use its excess capacity, Ford planned to build compact cars in India for emerging markets but shelved plans in 2016 amid a global consumer preference shift to SUVs.

It changed its cost structure in 2018 and the following year started work on a joint venture with local peer Mahindra & Mahindra Ltd designed to reduce costs. Three years later, in December, the partners abandoned the idea

Ford decided to not invest further after India lost $2.5 billion on entry. It also spent $2 billion more over the last decade.

Anurag Mehrotra from Ford India told reporters that he wanted to keep investing. He said, “To continue investment… we had to show a path towards a reasonable return upon investment.”

We are unable to achieve that unfortunately.”