Ford India winding down its manufacturing operations. This comes as a blow to the dealer partners, component suppliers and workers associated with the OEM and its support system as well. There will be job losses, business losses and other impacts as well. How does Ford India’s manufacturing operation exit matter and to whom?
It’s merely a few weeks since America has withdrawn its army completely from Afghanistan. The chaos has built up there and continuing, invoking a sense of insecurity in the Indian subcontinent. Coincidentally, right after few days of the last American soldier leaving Afghanistan soil, iconic US auto major Ford Motor Company announced their exit from Indian soil. We can’t call it exactly quit though, as Ford claims to be continuing its engine manufacturing operations in Sanand and sell high-end cars in the country through CBU (Completely Built Unit) route.
In short, we can term it like India can’t afford Ford or shall we call it Ford can’t afford India? The second one seems more apt considering the situation.
But, is it just Ford or the phrase is actually correct for all American automobile brands that are or once present in India? A few years back, General Motors left Indian soil citing their poor performance. Iconic motorcycle major from the far west, Harley-Davidson‘s exit made numerous headlines. Ford’s name in the list is just the latest addition ten months after Harley-Davidson. This latest development brought American automobile manufacturer’s presence and market share in the Indian market to nearly zero.
While both the events are very different, but there are uncanny similarities, if you can connect the dots. In the geopolitical developments in the Indian subcontinent, we have been witnessing reducing American influence lately, while Chinese influence is rising fast. Similarly, if we just take the Indian market, the American presence in the Indian auto market is reduced to near zero and Chinese presence is increasing. How?
MG Motor India, a late but significant entrant in the Indian market showing connected cars as its USP is owned by Chinese company SAIC. Volvo has Chinese company Geely among its investors and shareholders. A large number of Chinese automobile manufacturers and auto component makers such as Changan Motors, Great Wall Motors, Beiqi Foton, Kingfa, Lesso, and Wanfeng Auto – are looking at the Indian market seriously.
Not only auto companies, automotive startups, tyremakers present in India, battery ecosystem companies too have their investors from China. Clearly, the geopolitical and automotive segments in the Indian subcontinents are showing similar developments in sense of American influence decreasing and Chinese influence increasing.
Auto industry expert Avik Chattopadhyay differs the view. He believes the US influence will not die down as it remains in the tech and components area. It’s just gone down in auto brands closing operations. “Tech and software will be the US, while manufacturing, sourcing will be China,” he said adding, “Chinese auto brands will also make their presence felt in markets where they have easy access. In India, the political situation will not allow them that easily as the optics on automakers is bigger than that on component makers.”
This certainly makes for a case of another story. But, this story is more about Ford’s exit from India and what could be the effect.
Ford’s India exit isn’t shocking at all
Despite launching operations in India through a joint venture with Mahindra, and bringing some interesting models such as Ikon and Fiesta, Ford has never been able to ramp up its game in the country. The company started its journey in October 1995. Except for one or two models, Ford has never been able to impress Indian buyers. Over the last decade, its market share in India remained below 3% only. The automaker could not clock 100,000 units any year. Overall, Ford India always remained one model wonder, which was Ikon.
While the South Korean automakers and Japanese car brands have continued to grow from strength to strength by introducing new models and strengthening their India business, Ford remained in the abyss by not bringing innovation and new products. Clearly, the company’s current fate in India is majorly due to its own miscalculations. Despite being present in India and witnessing other car brands mending their products and marketing strategy for the Indian consumers, Ford never felt the urge and continued to walk on its own path.
The Indian market is very different compared to other markets. The Indian buyers are highly price-sensitive and they seek more at a lower cost. Ford never understood this, which eventually led them to take the exit call. Their strategy in the Indian market is quite similar to something the US government took in Afghanistan. It was like entering the country by entitlement, spending millions in wrong places, no strategy for building the business ground up, ultimately pulling up ditching partners.
Ford’s case has been very similar. It came to India and thought that it would win the game without realizing the ground reality and Indian consumers. The automaker had no strategy specific to Indian markets and local consumers. In the end, after bleeding chips, it decided to ditch the game. The company simply turned away from its dealers, Ford vehicle owners and its own employees. Instead of shifting its business into higher gears to give it a last shot, Ford became concerned about other markets.
In the meantime, Ford spent money like nothing else. Despite having a huge capacity plant in Chennai, it again invested $1 billion in a greenfield facility in Sanand in Gujarat. Without expanding the capacity beyond 30% in the Chennai plant, investing huge money for a new facility in Sanand was the wrong strategy for the automaker. Not just sales, wrong investments too cost a company to go into loss, which happened for Ford India.
As Ford India claimed in its official statement during the announcement of its exit from the country, the OEM lost more than $2 billion in operating costs over the past 10 years. Also, it claimed to have written down $0.8 billion of non-operating assets in 2019, which eventually forced it to announce shut down its plants in India. The company even accepted that the investments it made in the country didn’t work out in its favour.
The US auto major was trying to salvage its business by holding the hands of Mahindra & Mahindra. However, after a lot of discussions and meetings, the joint venture eventually didn’t start the day of light. This was kind of the last nail in the coffin of Ford India. Since then there was strong speculation that Ford would wind down its India business. And exactly that happened. Hence, no surprise was left there for us. It was just a matter of time. Overall, we have to remember that Ford never saw India as a key market, but just a potential one.
Puneet Gupta, Director of IHS Markit differs though. He believes that few exits like Chevrolet, Ford, Harley-Davidson, Navistar will definitely put a dent on consumers mind and consumers will definitely have some fear before buying global brands in India. “It’s unfortunate that Ford is ceasing its operations in India,” he said.
What’s next for Ford India, its dealers and suppliers?
Ford India’s operational and business restructuring strategy will see cease of vehicle manufacturing in Chennai and Sanand. The company will progressively wind down car manufacturing for export at the Sanand plant by Q4 2021 and Chennai engine and vehicle assembly plants by Q2 2022. To continue engine manufacturing for export, it will keep the Sanand engine production plant operational.
Ford India claims that despite the phased closure of its manufacturing operations here by 2022, it will continue to keep in touch with the Indian market by selling high-end models through the CBU route. The auto company has said that it will bring Mustang and Mustang Mach-E into the country market. After announcing its exit from manufacturing, which broadly translates to the phrase ‘Quit India’ to the general public, who are not reading the fine prints of the company’s statement, launching highly expensive models like Mustang and Mustang Mach-E are steps that would raise some eyebrow among the experts.
Certainly, Ford is not expecting to see many takers for these models except some overtly rich enthusiasts. This would massage Ford’s ego to some extent, but won’t serve any purpose to the company, neither its stakeholders in India. Speaking about Ford’s face to general consumers, the dealers; their condition is worse. In the last five years exit and ceased operations of automakers such as General Motors, MAN Trucks, Fiat, Harley-Davidson, UM Motorcycles, Eicher Polaris and some electric vehicle companies have caused over 64,000 layoffs in the country.
Automobile dealerships across India employ millions of people across different roles. Indian automobile dealers’ apex body Federation of Automobile Dealer Association (FADA) claims these OEM exits have resulted in a dealer investment loss of Rs 2,485 crore over the last five years and affected more than 464 automobile dealers across India. Ford just added its name to the list. Expect several Ford India dealers to slash their workforce soon.
After asking Ford India to provide clarity on how it plans to compensate its dealer partners and not getting any clarification, FADA has finally urged the government to monitor the OEM’s compensation structure. The dealers will face difficulty in selling new models and clear out the current inventory as the consumer perspective is affected already and the potential buyers would shift their attention to other car brands.
Indian consumer law will likely make them facing legal complications from the Ford consumers. Ford India dealer partners, who have claimed to have invested around $272 million building the dealerships expect the automaker to give them some compensation and plan something in future so that the dealers don’t land in legal soup against their customers in consumer court cases for their service responsibility.
FADA already claims that the NDA between Ford India and its dealers doesn’t explicitly mention the scope of discussions that the OEM intends to undertake with its dealers. Also, it is not clear if Ford India’s discussions with its dealer partners would include damages towards costs of idle establishment and infrastructure, maintenance, employee retrenchment claims, damages towards loss of opportunity and restrictions in availing dealerships of new OEMs in the existing infrastructure.
Talking about Ford’s exit and its impact, Puneet Gupta of IHS Markit said that companies like Ford bring technology, educate suppliers and hone the skills of employees and help in developing ecosystem in the country through their dealers. “They bring dollars and invest in the country. Their exit will create a vacuum in the country. We should not forget they were one of the global OEMs who has been customizing their products as per Indian markets. I think ford EcoSport, Ford Aspire and Ford Figo are excellent examples of the same which were sub-four metre and India centric products,” he further added.
There are other concerns as well, which include damages arising out of a compulsory restricted type of business imposed, stopping of sales and only continuation of parts and service and damages owing to loss of reputation and goodwill, loss owing to the expense of re-establishing customer base and goodwill etc. Overall, it’s a turmoiling situation and an uncertain time for Ford dealer partners and their employees.
It’s not only across the dealerships and Ford India’s own employees, the auto component suppliers that have been working with the US auto major too will find the newly evolved situation difficult to cope with. The vendors for Ford India have already claimed that the OEM’s exit will translate to huge losses in terms of raw materials that have piled up, imported and locally manufactured parts and exclusive machinery. At least 75 parts suppliers in Tamil Nadu claim that business with Ford India makes up 20-40% of their business, which is now going to vanished suddenly.
|OEMs exited India||Number of dealers||Employment loss at the dealership||Dealer investment|
|Ford India||170||40,000||Rs 2,000 crores|
|General Motors||142||15,000||Rs 65 crores|
|Harley-Davidson||34||2,000||Rs 70 crores|
|MAn Trucks||38||4,500||Rs 200 crores|
|UM & Lohia||80||2,500||Rs 150 crores|
|464||64,000||Rs 2,485 crores|
Ford India workers, You are fired!
Ford India exit from manufacturing and sales operations in the country will result in job loss for around 4,000 of its employees. Among them, more than 2,600 are permanent workers and over 1,000 are contract staff. Besides that, another 40,000 employees associated with Ford India dealerships too are awaiting a similar kind of fate. Overall, it’s around 45,000-50,000 people betrayed by Ford India during this already crisis period of the Indian economy.
In a desperate attempt to save their jobs, Ford India’s Chennai factory workers have written a letter to the state government asking them to help safeguard employment. In Sanand as well, hundreds of workers of Ford India protested outside the automaker’s plant, demanding that the factory’s closure plan be scrapped or the employees be provided other jobs.
Tamil Nadu’s Rural Industries Minister T M Anbarasan has informed a few days ago that the Ford India Chennai plant workers are currently receiving their salaries and have not been asked to leave immediately. The minister also added that the Tamil Nadu government will take all possible measures to safeguard the lives of industry workers and will also check the feasibility of another automaker taking over the Ford India facility. However, there are always concerns of the companies taking the advantage of weak labour protection laws and exploiting the workers.
Where should Ford India customers go?
Ford India currently has a customer base of more than one million. Since the OEM has announced its manufacturing operation exit in India, the customers have been worried about the warranties, maintenance and all other aspects related to their Ford cars. Though Ford India President and Managing Director Anurag Mehrotra have clearly stated that the company is not leaving India and will serve the existing customers, that was not very assuring for the owners.
The consumers might face difficulty in getting the critical repairs done in time. Such critical repairs would become a more time-taking affair. Minor repairing and maintenance are unlikely to be any major issue. The consumers who are aiming to buy Ford cars are likely to drive their attention to other brands. There might be a higher waiting period for the Ford buyers who have already booked their cars.
Usually, a car owner keeps a model for five years on average. In the case of Ford owners, they would face difficulty in reselling the cars, as the value of pre-owned Ford models will be much lower due to the perception Ford India has achieved through its latest step. Overall, it is going to be a topsy turvy situation for the consumers as well.
Ford’s Quit India: Bottomline
Well, while Ford India claims that it is not quitting India, but the steps they have decided to take looks nothing different. Speaking about whether it matters or not, the answer is yes and no.
Ford India’s exit will not change the Indian auto industry’s picture dramatically, as the auto company merely holds a 3% market share. The volume of passenger vehicles sold by Ford India in hatchback, compact sedan and SUV segments will be easily fulfilled by the other car brands present in India.
It is not going to impact the make in India campaign as much as well. However, a big brand like Ford leaving India operations will dent brand India’s image to some extent, but that is likely to be a minor one, as it is basically the result of Ford’s miscalculated steps, not the red-tapism or Indian system.
The real impact will be felt by the Ford India stakeholders like dealer partners, component suppliers and of course the employees. There will be a business loss, job loss and severe financial crisis for these stakeholders. In short, it is not going to matter for Ford India, but for the ecosystem stakeholders that supported the American automaker for two decades.