September 28, 2021

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Model T-urnaround! Why Ford shifted to reverse gear

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Saddled with $2 billion in accumulated losses, US carmaker Ford Motors has bid goodbye to its India dreams after struggling for 25 years to gain a decent toehold in a notoriously price-conscious automobile market.

To industry watchers, it was a question of ‘when’ and not ‘if’.

Saddled with $2 billion in accumulated losses, iconic US carmaker Ford Motors has bid goodbye to its India dreams after struggling for 25 years to gain a decent toehold in a notoriously price-conscious automobile market.

What went wrong?
ET spoke to industry experts and insiders to figure out why the US automobile giant stumbled despite staying put for well over two decades.

Its poor product pipeline, which utilised less than 20% of capacity, and falling exports were the proximate triggers for an exit, with no Plan B in place to claw back, they said.

“Automotive companies need to build scale with a wide portfolio of products, and without both, it’s difficult to survive in this value conscious Indian market,” experts pointed out.

Lack of scale
Ford did not have the products to snuggle into every part of the value chain. It did not usher in usable product aggregates that could have been cost competitive in the Indian context. The carmaker’s first India launch – Escort – failed, so did the Mondeo and Fusion. The only models that worked were its entry-level mid-size sedan, Ikon, and the compact sport utility vehicle Ecosport.

“Too many products in the entry level mid-size segment at that time made it difficult for Ford to get into the volumes game with the Ikon. To get the right product in the right segment at the right price became a challenge,” a company insider told ET.

Volumes Play
This was in stark contrast to South Korean automaker, Hyundai, which upped the volumes play with its striking designs and consumer connect, not to talk of industry leader, Maruti Suzuki.

Ford consistently struggled with an under 2% market share. It sold only about 48,042 units (including exports) in 2020-21, in a year when the country’s largest carmaker Maruti Suzuki did about 1.1 million and Hyundai 414,000 vehicles. The low sales volumes did not justify Ford’s Rs 2,000 crore investment in dealerships, which currently stand at 170 across the country. Its production fell to 80,000 units, one-fifth of its combined capacity of 400,000 at plants in Sanand (Gujarat) and Chennai (Tamil Nadu).

M&M’s Cold Feet
The maverick chief executive of Ford, Jim Farley, and wife Lia spend some time each year in charity work in Kerala. So, for this frequent India visitor, it came as no surprise when Mahindra & Mahindra (M&M) extended a hand of partnership in October 2019, albeit for the second time.

Pawan Goenka — whom Farley hugely admires — was at the helm of the Indian auto maker then. For Ford, the M&M option was a literal ‘get out of jail’ card, a last-ditch attempt to stay relevant in India. Ford had even said at the time that it had learnt the nuances of frugal engineering from Mahindra. Even as its first parting was not acrimonious, the second marriage — to develop products and platforms jointly — was always going to be a risk.

The plug was pulled out of this ‘non-starter’ joint venture (in December 2020) even before Goenka retired in April this year. The speedy divorce was a bitter pill to swallow for the US automobile maker.

“While a number of reasons are being given for the dismantling of the JV (joint venture), what is noteworthy is the fact that post-Goenka, Mahindra did not possess a leader to take a JV of this magnitude forward,” an automobile consultant said requesting anonymity. “It is one thing to manage domestic businesses, but international JVs require a high level of skill, precision and management play,” he said.

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The exit of Ford will benefit companies who are in the utility vehicle space, industry experts mentioned. At a time when Asian car makers have captured the market in the US, it was nothing but natural for the American automobile companies — General Motors and now Ford — to sputter and stop in India if they get their basics wrong.

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Earlier on Thursday, Ford announced the closure of its local manufacturing in India affecting more than 4,000 employees. Ford Motor Co is globally shelling out additional 1.7 billion dollars in cash to restructure its operations.

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The top management told employees that it would rapidly “ramp down” production of its popular models made in India, such as Ford Figo, Ford Freestyle in India.

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