In January, the world’s fifth-largest car maker, Ford Motor, closed down its last three plants in Brazil bringing an end to nearly five decades of manufacturing in the country. Now, less than nine months later it has taken a similar call in India. Both decisions are less a reflection of the inadequacies of the two markets, and more a pointer to Ford's growing inability to make any headway in its overseas operations. Even before the pandemic hit, the company had started scaling back in several countries, including Russia, France, and Germany.
In India its tiny market share of 1.4 percent after nearly 25 years in the business, is evidence of a sustained failure to crack one of the world’s fastest growing markets. In Brazil, where it has been present much longer burning through over $11 billion in the last decade alone, it has suffered a similar fate trailing five other car makers including General Motors, Volkswagen, Fiat, Hyundai and Renault in terms of market share.
While its failure in Brazil is attributed to the rapidly changing market dynamics in that country, the surprise is that the market in India has followed a fairly predictable course over the last two decades, one which Suzuki and Hyundai have navigated with great success. Ford’s failure might have been in getting its readings wrong at the outset.
Customers in a market where the GDP per capita in 1996, the year Ford launched in India, was $400, and which depended on imports for 90 percent of its oil requirements, would always look for value for their money. For context, that year, the GDP per capita in the US was almost $30,000.
The size of the car, its acceleration, its looks, Ford's claims to fame in its first few models, was hardly a priority for car buyers in India. Its own troubles in the US, along with those of market leader General Motors, once customers in the United States too started checking out the price of gas at the pump, should have persuaded the company to alter its India plans drastically.
For the most part it didn't, continuing to put out expensive models that competed with better products from rivals, and anyway catered to a thin slice of the market. The problem wasn't just that of the US car makers. European manufacturers such as Skoda and Renault have also disappointed, and even Japanese giants such as Toyota and Nissan have had limited success in India by following a similar line of thinking.
Toyota at least had one big winner in the Innova which over the years, built a large and loyal base of customers. Honda had the same experience with the City. Both have helped the two companies build small but significant market shares in their chosen categories.
Ford failed to create any such advantage. Even its small car, Figo, a belated launch in 2010, failed to sell in large enough volumes. With that, the die was cast for the US car maker, and mounting losses finally became unsustainable leading to the decision to end it all. While its departure is tragic for its employees as well as its vendors in India, no company can continue to operate two expensive auto plants at 20 percent capacity for long.
To be fair, the taxation structure in most developing countries tilts the balance heavily in favour of the incumbents. When it started out in 1981, Maruti Suzuki, the unquestionable market leader in India, was able to bag several concessions from the government, concessions that were not available to later entrants like Ford.
Despite that handicap, Hyundai, whose India entry coincided with that of Ford, showed it could be done provided there was the will and the desire to adapt. Ultimately, Ford's failure is the failure of a strategy of homogenisation that seeks to reduce the world to a single uniform market. The US multinationals of the 1990s vintage seem to have been particularly guilty of that with companies such as Ford, GM and Kellogg's coming in with an attitude that suggested they just had to show up in the country and sales would follow. Ford faltered in its grudging and creeping commitment to India. By contrast, Hyundai gauged the market’s need for a product that was differentiated yet at an affordable price point, launched the Santro, and has since been building on its success.
For all that, Ford's exit is a loss for India, not in terms of its past performance but in terms of its promise. As we move into the era of smart vehicles and clean energy, India needs the technologies to power the new generation of vehicles. Which is why the government is actively engaging with Tesla, the pioneer is such vehicles. In the US, Ford is in the process of pivoting to what it calls “a digital future”.
Its retreat from India, while in line with the company’s strategy to consolidate operations in profitable markets, comes at an inopportune time for India as it pursues a greener future.
Sundeep Khanna is a senior journalist.
Views are personal and do not represent the stand of this publication.
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