When Ford Motor Company, leading American multinational automobile manufacturer, exited India in 2021 it said the decision was part of its global restructuring programme but the move raised concerns in some quarters about the country’s business environment and its car market. Many questioned India’s automotive growth story. However, the runaway success of smaller brands such as Korean Kia Motors and Chinese MG Motors proved that India’s automobile growth story is intact. It is a mark of Indian auto market’s attraction that speculation about Ford’s return to India refuses to die.Tamil Nadu Chief Minister MK Stalin on Wednesday said he had met with Ford officials to discuss the future of their shuttered plant in Maraimalai Nagar near Chennai.
“Had a very engaging discussion with the team from Ford Motors! Explored the feasibility of renewing Ford’s three decade partnership with Tamil Nadu, to again make in Tamil Nadu for the world!” he said in a post on X (formerly Twitter). The meeting with Ford is part of the CM’s 17-day US visit where he has been looking to garner fresh investments for the state.
How Ford exited India, battered and bruised
Ford had exited India the first time in 1953 due to strict import regulations, but it was its second exit that made much news.When Ford built its first factory in India in the mid-1990s, US carmakers believed they were buying into a boom – the next China. The economy had been liberalised in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy. Rising disposable income would help foreign carmakers to a market share of as much as 10%, forecasters said.
But stung by USD 2 billion in accumulated losses and a rapidly thinning market share, Ford left India in 2021, joining American motown icons General Motors and Harley Davidson which too had shuttered their India businesses. Ford was globally restructuring its operations which included curtailment of Indian operation.
Ford had entered India 25 years ago but still had less than 2% of the passenger vehicle market having struggled for years to win over Indian consumers and turn a profit.
India was expected to become the world’s third-largest car market by 2020 after China and the United States with sales of some 5 million vehicles a year. Instead, sales languished at about 3 million, still trailing Europe and Japan too. India’s car market was dominated at that time by low-cost, mainly small cars made by Maruti Suzuki.
Analysts and executives said foreigners badly misjudged India’s potential and underestimated the complexities of operating in a vast country that rewards domestic procurement. Many failed to adapt to a preference for small, cheap, fuel-efficient cars that could bump over uneven roads without needing expensive repairs.
Some of Ford’s missteps can be traced to when it drove into India in the mid-1990s alongside Hyundai. Whereas Hyundai entered with the small, affordable “Santro”, Ford offered the “Escort” saloon, first launched in Europe in the 1960s. The Escort’s price shocked Indians used to Maruti Suzuki’s more affordable prices. Ford’s narrow product range also made it hard to capitalise on the appeal won by its best-selling EcoSport and Endeavour sport utility vehicles (SUVs). Lower market share also meant it could not achieve required economies of scale.
Ford had excess capacity at its first India plant when it invested USD 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 7 million cars a year by 2020 and 9 million by 2025. But the sales never followed and overall market growth stalled. Ford ended up utilising only about 20% of its combined annual capacity of 440,000 cars.
A lower tax rate for cars measuring less than 4 metres (13.12 ft) in length left Ford and rivals building India-specific sub-4 metre saloons for which sales ultimately disappointed.
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.
Why Ford can drive back to India
After announcing the exit in September of 2021, Ford did apply to participate in the government’s PLI scheme but later dropped its plans to make EVs in India for the global markets. In fact, the talk about Ford’s re-entry has never died since its exit. Last year, Ford unexpectedly abandoned plans to sell its Tamil Nadu plant (it had sold its Gujarat plant to Tata), its sole remaining factory site in the country, after finalising a deal with the Sajjan Jindal-led JSW Group. Ever since there has been speculation about its return to India, especially when Indian market has matured quickly and foreign brands such as Kia and MG Motors have become successful in a short period.
South Korean carmaker Kia proved that the Indian market was not a barrier for foreign car brands trying to carve a niche for themselves. Its Indian business had turned profitable in its third year of operations – a feat not even achieved by most incumbents with a higher market share – proving that carmakers can make profits in India if they get their strategy right. In FY21, the maker of Seltos and Sonet SUVs had recouped nearly half of the total loss it incurred in the four years of capital investment in India.
The speculation about Ford’s return is fuelled by phenomenal growth in India’s auto market. The Indian market is now too attractive for Ford to ignore, especially with the rise of SUVs and EVs, so Ford must be considering to drive back into India.
Last month, TOI reported that Ford is considering re-entering the Indian market with a new strategy focused on electrics and sustainability. CEO Jim Farley and the global team at Ford’s headquarters were set to review a feasibility report regarding this potential re-entry, TOI reported. The company now believes India as a crucial market for future growth as Western markets stagnate. With China’s and Europe’s markets not being as significant, India becomes a focus for growth. “Feeling is that it is not right to stay out of India, especially as the brand is still well-known to potential buyers,” a source had told TOI. India’s new EV policy should be a big pull for Ford.
Ford’s India 2.0 plan would likely include a combination of manufacturing for exports and assembly for the local market, sources have told TOI. The company may be considering using its Tamil Nadu plant primarily as an export-oriented unit to begin with. The plant will likely assemble EVs for the south east Asian market.
