CorporateFinance

Why ford is leaving India?

US-based Ford motors company, which was keenly identified in India through its josh machine, is deeply contemplating on leaving India. With the josh machine, Ikon lovers can vouch for their fondness of the company’s sturdiness, perfection, and efficiency.

Ford’s rise to power

What had led to the rise of power of Ford? It is to be noted that Ford and India have a long history. The first product of Ford was introduced in the Indian market as it had re-entered it by introducing its Ford Escort. This was seen after it had left India in the year 1953.

The reason for it pulling out of the market back in the day was severe import restrictions that had led to an increase in the cost of production. But given its enthusiasm and conviction, it had reentered India with its avatar of Mahindra Ford India Limited. The introduction in India was in the form of a 50:50 joint venture with Mahindra & Mahindra. This had led to a loyal customer base in India where many drivers can vouch for the efficiency and power of the company, including Wipro chairman Azim Premji.

Decision to quit

However, as the reports suggest, after mere 25 years of operations, Ford has decided to discontinue its operations in India. If the decision is to be scrutinized, it has not been too long for an auto manufacturer to be operating in India. This comes across as astonishing, particularly when its rivals namely Japan’s Toyota has been functioning in India since 1997 and are going strong. On the other hand, even Czech automaker Skoda that had effectively entered India in 2001 is going strong in the market.

ford india to stop production! should owners worry?

It is to be noted that the carmaker hasn’t exactly seen all smooth years of functioning even though it might have gained a loyal set of followers. While the company had witnessed big success in some models like the Ikon, the EcoSport, and the Endeavour, other models like the fusion, Mondeo wasn’t that lucky.

The reasons

The main decision to exit the market comes after the company has been posting humuhumu’s operating losses of over $2 billion. Coupled with huge operating losses, the company is also suffering from and low vehicle demand, which is not sitting right with its operating model. Thus, one can state that with falling profitability due to large operating losses and weak demand in the market, the company is finding it hard to find a sustainable path forward for a long-term profitability plan.

What had put a nail on the coffin for Ford was its decision to end its joint venture with Mahindra & Mahindra in the financial year 2019. The reason cited for the same was the Covid pandemic which has made matters worse for Ford. It is to be noted that the Joint venture scheme was aimed at strategic development, distribution, and marketing of Ford vehicles in India which was quite crucial for business.

On the other hand, such partnership was helping Mahindra products to gain traction in the high-growth international markets abroad. Thus, with the joint venture with Mahindra out of the picture, operations of Ford in India became quite arduous and its chances of survival got bleak.

ford exiting india, leaving 4,000 employees in lurch; what went wrong?

Is there a complete withdrawal?

According to the reports, Ford will effectively shut down its Sanand plant in Gujarat by the fourth quarter of the financial year 2021. Consequently, the company has decided to close its vehicle manufacturing and engineering plant in Chennai by the financial year 2022.

However, the company has decided on the strategy of continuing to sell cars in India through imports. Given the future model is based on importation, there are high chances, that Indians will witness the import of some high-end models like the Ranger, the Mustang Mach-e, the Mustang, etc. Additionally, Ford has also collectively decided to extend its support to dealers to continue to serve its existing customers.

what the exit of ford motor company from india tells us - india today insight news

Impact on India

This gives rise to a pertinent question that what impact will Ford’s decision have on the Indian employment market? It is to be noted that according to the reports, staff of around 4,000 will be impacted by Ford’s decision.

On the other hand, such withdrawals, in general, do not augur too well for the automobile sector or the employment sector in India. Given that India has been detestably hit by the pandemic and is still recovering, such decisions in the automobile sector will not materialize well for India’s revival strategy. The impact on unemployment holds more impact at such times as India is already struggling with record-high unemployment in its economy, which was exacerbated by the pandemic and the healthcare crisis.

is it the end of the road for ford in india? - just auto

Similarly, General Motors’ exit, which was materialized in the financial year 2019, was driven by the strategic decision to pull out of non-profitable market and operations in few countries like Russia, India, and Western Europe. On the other hand, Harley Davidson too had left India as part of its ‘Rewire’ strategy. Harley’s Rewire strategy had focused particularly on specific markets like Europe, North America, and some parts of Asia.

Automobile sector’s woes

It is no news that pandemic has exacerbated woes of the automobiles market around the world, so much so that the auto companies are now conducting big revamp exercises across nations in order to revamp their revenues that have plummeted since the pandemic. Additionally, they are also feeling the strong need to invest quite heavily in new businesses like electric vehicles. which is where the future of the auto sector lies.

With India moving towards the EV market, it is still not clear that what big effect will it have on the sales of automobiles in India. With various detestable problems at the moment like shortage of conductors, rising costs, constrained supply, etc. will the automobile sector be able to weather the storm of the EV market that is approaching them? Only future policies and the industry’s environment will be able to answer this question.

Edited by Sanjana Simlai.

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