End of the road: Why auto giants quit India

End of the road: Why auto giants quit India

Automakers like Ford had to exit as they failed to tailor strategies to suit the Indian market. Also, the government failed to meet their key demands

Workers assemble Ford cars at a plant of Ford India in Chengalpattu on the outskirts of Chennai, India. Credit: Reuters Photo

When someone bought a Chevrolet Cruze or a Ford Fiesta, it was based on trust in a solid American car with proven credentials. There was also a bit of a cult and fan following with models such as these.   

But the mighty have now fallen. Four years after General Motors (GM) exited India, Ford has decided to close down its plants in Tamil Nadu and Gujarat. The company blamed the accumulation of operating losses of more than $2 billion over the past 10 years and a $0.8-billion non-operating write-down of assets in 2019 for its decision. 

While Ford’s business model — it did not have any vehicle under Rs 5 lakh category like its competitors Hyundai and Maruti in a highly price-sensitive market — might have also played a pivotal role in the decision, the government cannot completely wash its hands of the exit.

Industry observers say that some crucial demands by the automobile industry like concessional GST rate were not met by the government.  Other concerns — such as higher road tax and ever-increasing fuel price — also compounded the problem. 

"The Indian automobile OEMs (original equipment manufacturers) have constantly faced various regulatory changes in a short span of time, over many years now. These can be in the form of BS-4 standards adoption, BS-6 standards adoption, the sudden push for EV manufacturing, axle load norms, vehicle scrappage policy, etc. Frequent changes or instability in policies have been deterrents to OEMs to continue their operations in India," says industry analyst Vahishta Unwalla.

Ford’s exit is certainly a blow to India’s automobile industry, more so because it is one of the first global auto giants to have set shop here in the early 1990s after the country’s economy opened up.

Also read: Ford's India factory workers seek government help to safeguard jobs

India, the fifth largest car market in the world, has a lot of potential, but it is not an easy one to crack. This is something the other manufacturers have learnt the hard way and tailored their strategies and product portfolios so that they can be competitive and make business sense.  

What is India then? It is a highly price-sensitive market in which a customer is most concerned about value for money. You need to tailor a car to suit the needs of the Indian market and make the customer see value in it. That is the reason why Kia, Hyundai and Maruti are doing well. Ford always largely retained the global models, but Indian customers did not see value in them.

Hyundai and Maruti are successful because they have small cars in their portfolio and this is the key to succeeding in India. 

Ford used only about 20-25 per cent of their production capacity and it never really worked out for them. Perhaps, if the recently called off joint venture with Mahindra had worked, it would not have led to this sorry state for Ford.

Ford’s two best products — the EcoSport and the erstwhile hatchback Figo — had their cash counters ringing but that was not to be for too long. Poor product planning and failure to adapt to the market proved to be their undoing.   

With General Motors, another American company, it was not a case very different from Ford India, even with the former’s small car Spark, which had the potential to do well. Clearly, they failed to read the market just like Ford.

When it comes to Harley-Davidson, it is again a misreading of the Indian market. India is a booming superbike market but the volumes remain in the inexpensive, commuter bike categories. 

Before exiting the market, the cheapest Harley-Davidson was the Street 750 at a price of about Rs 6 lakh before taxes, something that was out of reach for most Indians. 

Impact on MSMEs

While the companies obviously stand to lose, it does not augur well for the ambitious ‘Make in India’ initiative, as hundreds of Micro, Small and Medium-Scale Industries (MSMEs) thrived by manufacturing ancillary products for Ford. Industry sources say 4,000 MSMEs are likely to be affected due to Ford’s closure.

Not just direct job losses, there could be indirect ones too, as there are several micro industries entirely dependent on orders from Ford. There are around 500 small-scale industries that supply to three or four companies, leading to loss of order by up to 50 per cent due to Ford’s decision.  

MSMEs that specialise in manufacturing auto ancillary products for the automobile industry began mushrooming in and around Chennai as motor companies made a beeline to the metropolis.   

Also read: Ford wakes up badly burnt from its India dream

K E Raghunathan, convenor of Consortium of Indian Associations, told DH that MSMEs would take a direct hit due to Ford’s decision.

“In any auto industry, if there is one direct employee, we will have close to three to four indirect employees and two gig workers. I am afraid because I believe this is just the beginning as many auto giants are facing innumerable problems,” he said.

P B Ravikumar, president, Sipcot Pillaipakkam Industrial Estate Manufacturers’ Association, said a major chunk of the work at MSME units that supply to Ford may have been stopped.  

“Some MSMEs depend on their big clients. When they don’t get orders from them, their repaying capability comes down drastically. The recovery from the loss will take at least two to three years,” he said.   

Raghunathan added that it was high time that the state government had an Exit Assessment Bureau to discuss with any enterprise in Tamil Nadu wanting to exit or wind up.

“If Ford exits without finalising any buyer for its plant, we have no option but to seek the government’s intervention. The government should ensure our job security,” P Senthilkumar, general secretary of Chennai Ford Employees’ Union, told DH.

Nevertheless, government sources said it is not necessarily due to the fault of the Centre. Ford’s exit is unlikely to affect investor sentiment in India as the US-based firm’s decision is based on operational reasons and not on the business environment in the country, said an official in the Ministry of Heavy Industries.

The official, on condition of anonymity, said the government is in touch with the automobile industry. “The government is open to dialogue and ready to extend any help for the sector’s growth,” said the official. “For the past six years, more than $35 billion investments have come into India, including $4.4 billion in fresh investments by more than 10 companies.” 

“In Ford’s case,” the official said, “the company has not sought any help from the government. But company officials said they continue to invest in India for research and development.”  

(With inputs from Ajith Athrady, Annapurna Singh and E T B Sivapriyan)