After nearly three decades of struggling to make a mark in India, US auto major Ford Motor Co on Thursday said it will stop vehicle production at its two plants in the country and will sell only imported vehicles going ahead as part of a restructuring exercise.
Jim Farley, Ford Motor Company’s President-CEO said “Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years and demand for new vehicles has been much weaker than forecast.”“Ford will continue to provide customers in India with ongoing parts, service, and warranty support. As part of the plan, Ford India will wind down vehicle assembly in Sanand by the Q4 of 2021 and vehicle and engine manufacturing in Chennai by the Q2 of 2022,” a release said.
Following accumulated operating losses of over $2 billion in 10 years and a $0.8 billion non-operating write-down of assets in 2019, the restructuring is expected to create a sustainably profitable business in India, it further said.
Anurag Mehrotra, President and MD, Ford India, said “The decision was reinforced by years of accumulated losses, persistent industry overcapacity and lack of expected growth in India’s car market.”He said several options were tried to make a viable business plan, including introduction of new products, emerging market operating model to bring down costs, potential collaborations with OEMs such as Mahindra and even contract manufacturing. “Unfortunately, whichever scenario we tried or investigated, all our projections show that we will continue to deliver suboptimal returns on shareholder investment,” he added.
VG Ramakrishnan, Founding Partner and MD, Avanteum Advisors LLP, believes Ford could not reach its potential in the Indian market though it had its moments. “It squandered away the opportunities. In contrast, is the success of brand Kia,” the auto veteran sought to point out to DTNext, as he said other players had seen tremendous growth, capitalising on the opportunities.
The management outlook was different for India as a market, he said, noting that both in Europe and India, the Michigan-based Ford had faltered and struggled like its other American counterpart General Motors. Ford failed to replicate the growth it found in China, where the strategy to produce vehicles for the US market clicked.
Approximately 4,000 employees are expected to be affected by the restructuring. Ford will work closely with stakeholders in Chennai and Sanand to develop a fair and balanced plan to mitigate the effects of the decision, it said.
Over 500 employees at the Sanand Engine plant, which produces engines for export for Ranger pickup truck, and about 100 employees supporting parts distribution and customer service, also will continue to support Ford’s business in India.
Ford will begin importing and selling must-have, iconic vehicles, including Mustang coupe. Customers in India also will benefit longer term from the Company’s plan to invest more than $30 billion globally to deliver all-new hybrid and fully electric vehicles, such as Mustang Mach-E. Sales of current products such as Figo, Aspire, Freestyle, EcoSport and Endeavour will cease once existing dealer inventories are sold.
Ford India will maintain parts depots in Delhi, Chennai, Mumbai, Sanand and Kolkata.
Meanwhile, it is learnt from a source there are also talks of the “good asset” being taken over lock, stock and barrel by another auto player.
“It is too early to evaluate the scope of finding other buyers but the state government is confident of reviving the facility,” said the source, citing the example of global telecom gear major Nokia, which also folded up in TN, when it suspended handset production at its Sriperumbudur facility from November 1, 2014. This was after Nokia sold its devices and services business, including assets in India, to Microsoft for $7.2 billion in March 2014.
“When the Finnish brand collapsed and left the state, 30-40 vendors too followed suit. But we were able to rope in other new telecom players over a period of time, along with the vendors who have now revived the ecosystem.” Of course, unlike telecom, the auto foundation is far more robust, with most of the global brands having presence in TN.
A key member of the team that attracted Ford into TN, is quick to point out “It is good to note that FBS and Ford Product Development centre (the second largest R&D operations of Ford) will continue in Sholinganallur. This is another feather in our cap as we had faced extremely tough competition at the global level including Australia, China, etc. We snatched it successfully and this is yet another project we had worked passionately for almost a year to clinch it.”