Top automakers have struggled to succeed in India; can Ford be different?
Feb. 16—Success in the Indian auto market — already one of the largest in the world, with huge growth potential — has proved elusive for the world's top automakers. Now, it's Ford Motor Co.'s chance to show whether it can be any different.
After struggling to prosper there and then abandoning its highly touted joint venture with Indian conglomerate Mahindra & Mahindra on New Year's Eve, the Blue Oval faces an uncertain future in the market.
"Ford's not alone," said Michael Dunne, CEO of Hong Kong-based advisory firm ZoZo Go LLC. "Whether you look at General Motors, FCA, Peugeot, Volkswagen, Honda Toyota — they've all struggled to find the right formula for success in the India market."
The outcome is not guaranteed. Even as Ford signaled its business in India would "continue as is," the automaker is vague about the direction it expects to take there. This comes amid an intensifying internal reappraisal of how the Dearborn automaker allocates scarce capital in the traditional auto business around the world as it invests in next-generation electric and autonomous vehicle programs.
"You can have your bestsellers worldwide, but ultimately, you have to cater to the local markets, make cars for Indians, and give people what they want," said Pavan Lall, a Mumbai-based journalist and consulting editor for the Indian newspaper Business Standard. "You need half a dozen (great products), and you need one really rainmaking product that becomes your superstar."
Mahindra deal
The proposed tie-up with Mahindra & Mahindra — a decades-old manufacturer that has been successful selling SUVs in its domestic market — was considered a way to help Ford gain traction in a market it had long struggled to penetrate, and for both companies to realize scale and sourcing advantages. Ford would have transferred its operations to the partnership and the two companies would have co-developed several new vehicles for India as well as for export to other markets.
But on Dec. 31, the two companies announced the deal was being scrapped amid what they described as "fundamental changes in global economic and business conditions" caused in part by the pandemic.
Currently, the automaker makes the Ford Figo, Aspire and Freestyle at its Sanand Plant in Gujarat and the Ford EcoSport and Endeavor in Chennai, Tamil Nadu. Of those, only the India-built EcoSport is sold in North America.
Ford executives alluded to the challenges they face in the market during an earnings call with Wall Street analysts earlier this month. Chief Financial Officer John Lawler said Ford's international markets group — which includes about 100 countries around the world — was profitable when excluding the impact of its India operations.
"While we continue our independent operations in India," he said, "we are actively evaluating alternatives and reassessing capital allocation for India."
The reassessment is not unique to India. Ford CEO Jim Farley, upon stepping into the role Oct. 1, detailed a plan to turn around the Blue Oval's automotive business that includes evaluating its operations around the world to determine the most effective ways to deploy capital and achieve profit goals.
The automaker recently announced, for example, that it would cease manufacturing operations in Brazil, as part of a broader global restructuring that already has delivered some progress in Europe and China.
Instead, the automaker will focus on "a more profitable, asset-light model" in South America, Farley said. Under that strategy, the automaker will shift resources away from a market where it's losing money and source its most popular vehicles — and electric and connected ones — from other parts of the region.
"We're seeing real improvements in our core automotive business, and we are laser-focused on further progress this year," Farley told Wall Street analysts. As the company works to generate "consistently strong free cash flow" for its automotive business, he said, "we will allocate that capital to its best and highest uses for creating sustained value."
Growing market
Despite its challenges, industry experts see huge potential in India's growing vehicle market.
In 2019, India became the world's fourth-largest auto market with nearly 4 million vehicle sales, according to the India Brand Equity Foundation, a trust established by the country's department of commerce. Further growth is expected in the coming years, driven by the country's young, rising population and a burgeoning middle class.
The market was projected to grow at a compound annual growth rate of 11.3% between 2020 and 2027, according to a report from business consulting firm Grand View Research, Inc.
"Growing preferences for Sports Utility Vehicles (SUVs), rising demand for commercial vehicles in the logistics sector, and pent-up demand are certain factors expected to drive the market over the coming years," the report states. "Additionally, the electrification of vehicles, especially, three-wheelers, and small passenger cars, is expected to be a major factor influencing market growth in the future."
Urbanization is expected to help, too — a report from McKinsey & Co.'s future mobility center projected India would have more than 500 million people living in cities by 2030, more than 1.5 times the U.S. population.
A handful of automakers dominate the market, led by Maruti Suzuki India Limited and Hyundai Motor India, and followed by smaller players including Mahindra & Mahindra, Ford and Honda India. Grand View attributes Maruti Suzuki's success to the manufacturer "offering multiple vehicles in each passenger vehicle sub-segment at competitive prices."
"Importantly, they have scaled, which is the holy grail of automotive manufacturing," Dunne said. "With scale, you can drive your cost down; without it, you're really swimming upstream."
Meanwhile, Ford's sales comprise just a sliver of the overall market — less than 3% in fiscal year 2020, according to market and consumer data company Statista.
Challenges in an emerging market
A significant challenge global automakers face in India is price. Ford might be able to sell a truck for $40,000 in the United States, netting a high-margin profit on the sale. Not so in an emerging market.
"India is one of the most price-sensitive markets on the planet," Dunne said. "You have a global automaker based in the United States that's accustomed to a cost structure and price points that are totally a different planet than what we find in India."
Lall noted that Ford has been successful with numerous products it's made and sold in India, but has struggled to grow its market share as its limited offerings in the country go head-to-head with dozens of competitive offerings from the likes of Maruti Suzuki: "Fast forward to now, you realize that, for some reason, they just haven't had a flurry of products come out fast enough."
As Ford faces the decision of whether to make the necessary investments to turn around its India business, or exit as other foreign automakers have done, the shift to electric vehicles presents both a challenge and an opportunity, experts say.
The transition to EVs will be a costly one, which is one reason why rivals such as General Motors Co. have abandoned global markets like India to focus in the short term on high-margin SUVs and trucks to help pave the way for an electric future.
"That's the dilemma facing the Detroit Three, and for that matter global automakers: 'What do we do at this juncture?'" Dunne said.
"(They) need to pour so much money into autonomous, electric, connected vehicle technologies. That's a massive ask. At the same time, if (they) pull back and become a North America company, it won't be easy to get back into these markets later. You cannot just flip the switch."
Experts say if Ford does want to turn things around in India, it will have to make products that appeal to Indian customers, similar to how it tailored its strategy in markets such as China to suit consumers there. In India, said Lall, that means SUVs featuring the latest technology and affordable price tags.
"For companies like Ford, what they should have done was just dug their heels in and said, 'We're losing money, it's OK, we're committed to this market for the long term,'" he said. "Park maybe half a billion dollars over here and churn out three or four more products in the long-term and make this work — because India is a growing market. People do want cars."
Twitter: @JGrzelewski
