New Delhi: Ford Motors, one of the first global automotive companies that entered Indian auto market and commence operations here in the 90s has now announced to wrap up India operations after incurring USD 2 billion in losses, over the past 10 years.
American auto major on September 9 said it is “forced” to end manufacturing operations in India and close plants at Sanand and Chennai, due to “huge accumulated losses and lack of growth in a difficult market”.
While production for domestic market has stopped with immediate effect, Ford will reportedly wind down the manufacturing of vehicle for exports in Sanand, Gujarat by the fourth quarter of 2021 and vehicle and engine manufacturing in Chennai by the second quarter of 2022, a statement read.
Having entered India in the mid-1990s Ford has struggled to make a mark in the Indian automotive space despite more than two decades of existence. At just 1.57 percent market share, Ford ranked ninth on the list of India’s biggest carmakers. Ford sells five models in India – Figo, Aspire, Freestyle, EcoSport, Endeavour – in the price band of Rs 7.75 to Rs 33.81 lakh.
Ford tried to change fortunes in India with the proposed handshake with SUV-specialist Mahindra & Mahindra (M&M) a few years ago. The plan was to share manufacturing plants with M&M besides joint development of products and technologies.
The two companies discussed it for two years before forming a joint venture agreement in October 2019. This JV was to house both of Ford’s India plants (excluding the engine-making plant).
But in January 2021 both companies decided against going ahead with the partnership driven by the disruption caused by the pandemic. Instead of infusing funds for the joint venture with Ford which was Rs 1,400 crore, M&M routed the investment towards its own electric mobility programme, thus strengthening the way out for Ford Motors from Indian Market.
This big decision is expected to affect approximately 4,000 employees. However, Ford has assured that it will be working closely with employees, dealers, unions, suppliers and other stakeholders to reduce the impact of its India exit. Ford India will maintain parts depots in Delhi, Chennai, Mumbai, Sanand, and Kolkata and will work closely with its dealer network to restructure and help facilitate their transition from sales and service to parts and service support.
However, Federation of Automobile Dealers Associations (FADA) has expressed concerns about these recent developments. FADA President Mr Vinkesh Gulati said that he had a discussion with Ford India President & MD, Mr Anurag Mehrotra. Ford has promised that dealers who continue to offer vehicle service to customers will be adequately compensated.
While FADA has appreciated Ford’s plan for their dealers, it is concerned that it may not be enough. That’s because there are around 170 Ford dealers with around 391 outlets. Investments of approximately Rs 2,000 crore have been made for setting up these dealerships. It is unlikely that dealers would be able to recover such significant investments. FADA also pointed out to around 40k people that these dealerships employ. Another area of concern is existing inventory of around 1,000 vehicles. Dealers have taken loans worth around Rs 150 crore for their inventory from leading banks. This further complicates the financial situation for dealers. A number of demo vehicles are also with the dealers. Since Ford has announced its exit, very few customers will be willing to buy these cars. Even discounts and offers may not work to motivate customers to buy new Ford cars.
FADA says that the worst impacted will be new dealers that were recently appointed by Ford. Just around five months back, Ford was regularly inducting new dealers. Such entities may have to face significant financial losses. According to FADA, such abrupt exits by automakers are likely due to absence of a dedicated Franchisee Protection Act in the country.
This is the second major exit of local manufacturing operations in India by a global automotive brand. US giant General Motors, which entered India just a few years before Ford, stopped selling cars in India in 2017.
Harley Davidson, Man Trucks, and UM Lohia are also among the big companies that left Indian market. There have also been multiple cases involving fly by night Electric Vehicle companies.
FADA says that it has been requesting the government to introduce Franchisee Protection Act. Such laws already exist in countries such as China, Russia, Japan, Australia, Italy, Sweden, Brazil, Mexico, Malaysia and Indonesia. Dealers in these countries are relatively less impacted, as compared to their counterparts in India.
Notably, Franchise Protection Act for automobile dealers in the country has already been proposed by the Parliamentary Committee on Industry. This act will be beneficial for the entire ecosystem including manufacturers, auto dealers and customers. It remains to be seen when this act will finally be passed by the government.