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Why did Ford decide to shut its manufacturing plant in India ?

Abstract

This article¬ is an attempt to interlink all the major factors behind the failure of Ford in India apart from accumulated operating losses of¬ $2 billion dollars¬ and why they are shutting down its manufacturing units of Tamilnandu and of¬ Gujarat. This article has covered pre and post covid-19¬ factors.

 

Introduction

The Indian¬ automobile sector slowdown is not hidden from anyone and the recent prey of this slowdown after FIAT, General Motors and Harley Devidson is Ford who is known for its dynamic products and performance globally. In the recent announcement on 9th of September it was confirmed by Anurag Mehrotra (president and managing director of Ford India) that their management has decided to restructure the Ford India operations which includes the closure of¬ vehicle assembly in Sanand (Gujarat) and vehicle & engine manufacturing in Chennai. It is not less than a mini setback to the Indian automobile sector affecting 4,000 employees directly and raising a question of doubt on the government initiative of ‚ÄėMake In India‚Äô.

 

Major reason for its failure

 

  1. 1. Ford failed to understand the Indian market and Ford management failure:¬ Before proceeding further, We need to understand the reason behind the maruti suzuki success in India,having almost 50% of¬ market share, reason behind is there management and their focused approach on middle income class customer as India is still a lower income class country as per World Bank criteria.¬ India is the second largest market after China, leaving no doubt of shortage of demand provided¬ products are made according to customers’ needs. That is the exact area where¬ Ford fails and Maruti Suzuki succeeds.¬

 

  1. Failure of Ford motor and Mahindra joint venture: In the month of january 2021 Mahindra called off its venture with Ford motor, signed in october 2019 and the major loser of this was Ford motors. Some reports reveal that Ford considered Hyundai motors, Tata motors as potential partners to stay in India markets till 2023 but all this did not work.

 

  1. Competitors edge: there is no denial to cut through¬ competition in the Indian automotive sector specially the car segment after 1991 economics reforms. Ford India has around 1.77% share in passenger cars in India against its competitors maruti suzuki , hyundai and Tata of 47.8%,17.42% and 8.2% respectively. For Ford 1.77% share was not enough for continuing their operation in India.

 

  1. Global chips shortage : Global chips shortage is not less than a¬ nightmare for all players in the automotive sector. This has created a shortfall¬ in supply against the demand after the covid-19. This has made every customer wait for their product. Chipset shortage is as likely as a heart attack for Ford against its less demand with delays in order delivery, so even after recovery,¬ customer first preference was not Ford Motor.

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  1. 5. Huge accumulated losses: Financial of Ford India depicts $2 billion¬ dollar accumulated operating¬ losses for the last 10 year¬ against its investment of $2.5 billion dollar in India, which means they were having negative returns on their investment.

 

  1. High spare parts and maintenance cost : Purchasing a car is not a one time investment, it requires routine maintenance at regular intervals of time. Before purchasing a car a rational customer would be interested to know the maintenance cost along with insurance premium and wear and tear of moving parts. Except for Ford¬ Figo, maintenance costs of Fords cars are very high,whereas maruti¬ and other competitors have an edge over this.

 

  1. 7. Global operational slowdown: Ford motors globally, facing a shortage in demand, their recent announcement on january 2021 intends to cease all its production in Brazil after their presence of more than one century, adding to its failed venture with Mahindra it was expected that Ford may cut down its production in India.

 

  1. 8. Government tax for all:¬ Taxes on cars in India may go upto 50% of car cost. Which makes it unaffordable for many middle income classes. In august 2021 the Indian revenue secretary said the government is considering cutting down tax to pump the auto sector in India. The high taxes on cars with¬ high maintenance costs, makes Ford the least favourable among¬ customers.¬

 

  1. 9. Weak performance of the automotive sector of India: From financial year 2019 to financial year 2021 the sale of automobiles has declined in India due to NBFC crises,¬ and covid-19 was an add on factor, which created a short demand for cars in the huge market of India. This slowdown has devastating effects on car manufacturers like MG motors and Ford motors.

 

Conclusion: India is an undisputed second largest market after China, of cars and its growing day by day and leaving such a market even after having 1.77% share¬ depicts the inability of Ford management not only in India but¬ worldwide after their closure of Brazil plants and failure of their venture worldwide. Ford needs to learn from Tata motors and Mahindra in spite of having low market share in India, they are investing in research and development to understand the markets. Whereas Ford investment in research and development is negligible which is most important to get advantage in cut through competitions in¬ large markets like India.

 

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¬ ¬ G.S.T rates on cars¬

¬ ¬ https://www.paisabazaar.com/tax/gst-on-cars/

 

¬ ¬ Market share of automotive sector in India-

https://www.statista.com/statistics/316850/indian-passenger-car-market-share/

 

Maintenance car data-

https://www.bankbazaar.com/car-loan/top-10-low-maintenance-cars-in-india.html

 

Sale of automobile in India

https://www.statista.com/statistics/608392/automobile-industry-domestic-sales-trends-india/

 

R & D¬

https://www.business-standard.com/article/companies/automobile-r-d-investments-soar-on-new-regulati ons-emerging-technologies-119071100597_1.html

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