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Ford wakes up from the Indian dream

New Delhi-When Ford Motor Company established its first factory in India in the mid-1990s, American automakers thought they were buying prosperity-the next China.

The economy was liberalized in 1991, the government welcomed investors, and the middle class was expected to trigger a consumer frenzy. Forecasters say that the increase in disposable income will help foreign automakers gain up to 10% of the market.

It never happened.

Last week, after compatriots General Motors and Harley-Davidson closed their Indian factories, Ford suffered a loss of $2 billion by stopping production of cars in India.

Among the remaining foreigners, Japan’s Nissan Motor Co., Ltd. and Germany’s Volkswagen, the world’s largest automaker, each account for less than 1% of the car market. The third largest auto market country after China and the United States, with annual sales of 5 million.

On the contrary, sales have stagnated at approximately 3 million vehicles. The growth rate over the past ten years has slowed from 12% ten years ago to 3.6%.

Ford’s retreat marked the end of the Indian dream of American automakers. It also announced its withdrawal from Brazil in January, reflecting the shift of the industry from emerging markets to areas that are now widely regarded as investments in electric vehicles.

Analysts and executives said that foreigners seriously misjudged India’s potential and underestimated the complexity of doing business in a vast country that rewards domestic purchases.

Many people fail to adapt to the preference for small, cheap, fuel-efficient cars that can bump on uneven roads without expensive maintenance. In India, 95% of cars sell for less than US$20,000.

The low tax rate on small cars also makes it more difficult for large car manufacturers in the Western market to compete with small car experts such as Japan’s Suzuki Motor Corporation, which is the controlling shareholder of Maruti Suzuki India Ltd, India’s largest automaker by sales.

Among foreign automakers that have only invested in India in the past 25 years, analysts said that only Hyundai Motor Co. of South Korea has achieved success, mainly due to its broad portfolio of small cars and its grasp of the needs of Indian buyers.

Ravi Bhatia, President of JATO Dynamics India, said: “The fallacy of the company’s investment in India has huge potential and buyers’ purchasing power will increase, but the government has failed to create this environment and infrastructure.” Market data from the automotive industry.

Early mistakes

Some of Ford’s mistakes can be traced back to the mid-1990s when it drove into India with Hyundai. Hyundai entered the market with the compact and affordable “Santro”, while Ford offered the “Escort” sedan, which was first introduced in Europe in the 1960s.

On October 4, 2018, when the new Ford Aspire was launched in New Delhi, India, a visitor was taking pictures of him. (Anushree Fadnavis/Reuters)

Former Ford India executive Vinay Piparsania (Vinay Piparsania) said that Escort’s price shocked Indians who are used to the more affordable prices of Maruti Suzuki.

LMC analyst Ammar Master said that Ford’s narrow product range also makes it difficult to capitalize on the appeal won by its best-selling EcoSport and Endeavor sport utility vehicles (SUVs).

The automaker said it had considered bringing more models to India, but believed that it would not be profitable to do so.

“Many global brands have been struggling to meet India’s price point because they bring global products developed for mature markets with high cost structures,” Master said.

In mid-2000, a feature of the Indian market was the lower tax rate for cars less than 4 meters (13.12 feet) in length. This allowed Ford and its competitors to manufacture cars under 4 meters dedicated to India, and the final sales volume was disappointing.

“The American manufacturer with the DNA of a large truck strives to create a high-quality and profitable small vehicle. No one has done the product very correctly, and the losses are increasing,” said Bhatia of JATO.

Rise and fall

When Ford invested US$1 billion for the second time in 2015, it experienced overcapacity at its first Indian plant. It plans to build India into an export base and increase its market share. It is expected to reach 7 million vehicles per year by 2020 and 9 million vehicles by 2020. 2025.

But sales have never followed up, and overall market growth has stagnated. Ford now uses only about 20% of its total annual production capacity of 440,000 vehicles.

In order to take advantage of its excess capacity, Ford plans to produce compact cars for emerging markets in India, but the plan was shelved in 2016 due to global consumer preference shifting to SUVs.

It has changed its cost structure with its local counterpart Mahindra & Mahindra Ltd, which aims to reduce costs. Three years later, in December, the partners gave up the idea.

Since entering India, Ford has invested 2.5 billion U.S. dollars in India and burned another 2 billion U.S. dollars in the past ten years alone. Ford decided not to invest anymore.

“In order to continue investing… we need to show the way for a reasonable return on investment,” Ford India head Anurag Mehrotra told reporters last week.

“Unfortunately, we can’t do this.”

Aditi Shah

Reuters

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This News Originally From – The Epoch Times

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