Ford Motor Company recently announced that it will be shutting down its car manufacturing plants in Gujarat and Tamil Nadu. And while they've promised to provide their customers with spare parts and service, it is clear as day that Ford has indeed made up its mind to leave India.
So the question is, why?
The Story
Everybody seems to have an opinion on why Ford shut shop. So do we…
But, the reality is that this stuff is more complicated than you think and sometimes it makes sense to collate a broad range of opinions as opposed to just offering our own. So let’s look at these opinions shall we —Starting with Ford’s own statement on the matter.
“The decision was reinforced by years of accumulated losses, persistent industry overcapacity, and lack of expected growth in India’s car market”, said the Managing Director of Ford India.
Accumulated losses — There’s absolutely no other way to spin this. Ford India has been bleeding money for a long long time now. According to Business Today, the company made revenues of ~28,000 crores in FY2019 and a net profit of 211 crores in the same year. Not too bad you think. But then in FY2020, the revenues dropped to a measly 2,000 crores with the company having lost close to 5,400 crores. All in all, the company accumulated losses to the tune of $2 Billion while trying to take a stab at the Indian market.
Horrible figures.
Industry Overcapacity — This one is another no-brainer. For the past 7–8 years, Indian automakers have added excess capacity even as growth prospects were dwindling. Everybody did this in the hope that they would be able to corner a fair share of the growing market. But alas, not everyone can win and some fared better than the others.
In fact, many companies in India had to export vehicles in a bid to fully utilize their plants. At one point, Ford India was exporting over 90,000 EcoSport cars per year, almost twice the amount of domestic sales. Now, this could have been a market opportunity in itself. However, as one article in the Print notes — “Ford set up a second, large-scale car plant in Gujarat (adding to one in Tamil Nadu) because it looked forward to a free-trade agreement (FTA) that would open up the European market to cars from India. The FTA has not happened. And because the company has had only one moderately successful model in India, it has not been using three-quarters of its production capacity. An exit then became inevitable.”
So overcapacity was in fact a problem, but a problem of Ford’s own doing.
Finally, we have to talk about the lackluster growth in the auto market. Since 2019, the numbers haven’t exactly inspired a lot of confidence. The automobile slowdown was followed by a general economic slowdown and soon after, Covid induced lockdowns. It’s not the kind of market anybody wants to operate in. So you can understand why this is also a sore point.
However, all this is just the company perspective — What about the dealers? Why do they think Ford is shutting shop?
Well, they seem to think that Ford always lacked a clear understanding of the market. The popular perception being that the company’s Indian operations were still largely being driven by the people in Detroit, USA. And so nobody was ever convinced Ford could truly scale up but they didn’t expect them to completely shut shop either. The dealers are now starting at hundreds of crores in losses and are seeking government intervention.
Elsewhere Industry observers seem to think Ford’s product portfolio was simply not up to par.
Except for SUVs like the EcoSport and Endeavour, Ford simply couldn’t make a car that was compelling to a lot of buyers. We like affordable vehicles down here. We need mileage and we need reliability. Performance is an afterthought. Ask the likes of Maruti Suzuki and Hyundai and they’ll tell you as much. However, Ford never seemed to have fully come to grips with this idea. And when they did get on the small car bandwagon with the launch of Figo in 2010 it was too late.
Bottom line — Product launches were slow and variety was all but non-existent. And most observers feel Ford India never really catered to our people’s needs.
So yeah, depending on who you ask, you’ll probably get different answers. And in maybe all of these factors contributed in some way towards the inevitable exit. In any case, if you have a different take on the matter, don’t forget to tweet at us.
Until then…
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