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Auto incentive scheme: Is it too little, too late for Ford India?

Barely a week after Ford said it would stop making cars in India, the government introduced incentives for manufacture of electric and hydrogen-fuel cars. Some experts believe Ford should reconsider its decision

September 17, 2021 / 01:59 PM IST
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. 
 (In pic: Ford Ecosport)

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. (In pic: Ford Ecosport)

Action in India’s automobile sector seems to be picking up. Days after Ford Motor Company said it would shut both its manufacturing plants in India, the Union government unveiled a production-linked incentive scheme on September 15 to promote the local manufacture of advanced automotive technology products such as electric and hydrogen-fuel vehicles.

On Thursday, heavy industries minister Mahendra Nath Pandey expressed the hope that the PLI scheme would attract US electric car maker Tesla to set up a manufacturing base in India. The scheme is aimed at making India one of the largest electric vehicle markets in the world.

Ford’s decision to stop making cars in India may have been badly timed but perhaps became inevitable after a proposed joint venture with the Mahindras ended early this year. The company decided to wind up its manufacturing operations and cut its losses after accumulating operating losses of more than $2 billion over the past 10 years.

Also Read: Mounting losses, confused strategy and bad timings—all that went wrong for Ford in India

“After all, cutting losses is profit. Ford finally took this route,” quipped a senior industrialist in Chennai on condition of anonymity. “Most American companies do not have the knowhow to manufacture an inexpensive entry-level car.”

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Some experts said the PLI scheme may provide a window for Ford to rethink its decision.

In its statement on restructuring India operations on September 9, Ford said customers in India will benefit in the longer term from the company’s plan to invest more than $30 billion globally to deliver new hybrid and fully electric vehicles, such as the Mustang Mach-E.

Skoda, Ola

Ford has a wide-ranging global alliance with Volkswagen for electric, pick-up trucks, vans and autonomous technology. Ford is said to have studied prospects for such an alliance with Skoda, which represents VW in India, but nothing came out of it. In the changed scenario, Ford may consider taking a fresh look, experts said.

Ford plans to shut its vehicle and engine manufacturing unit in Chennai by the second quarter of 2022. The US company is said to have offered its Chennai plant to electric mobility startup Ola, which has a factory to make electric scooters coming up near Bengaluru. It’s possible that Ola may revisit the offer and use the plant to make electric cars.

Ford India said it took the restructuring decisions after exploring options such as partnerships, platform sharing, contract manufacturing and the possibility of selling its manufacturing plants, which is still under consideration.

About 4,000 employees are expected to be affected by the restructuring. Ford said it will work with employees, unions, suppliers, dealers, the government and other stakeholders in Chennai and Sanand – where its plant produces engines for export – to develop a fair and balanced plan to mitigate the effects of the decision.

‘TN must act’

For the MK Stalin-led DMK regime in Tamil Nadu, closure of the Ford plant at Maraimalai Nagar near Chennai could result in a sizable number of job losses and attendant downstream consequences unless a buyer is found quickly.

“Ideally, the government should reach out proactively to the Tatas and Mahindras. Both have other interests and operations in Tamil Nadu and they can be offered specific incentives to take over the plant,” a top industry official said, asking not to be identified.

Also Read: How the Auto PLI scheme will nudge the industry towards green vehicles

With many auto component suppliers located in and around Chennai, “it would be a perfect fit,” the official added.

Tata Motors currently sells the highest number of electric cars in the country, with its Nexon EV and Tigor EV models. Tata Motors sold over 28,000 cars in India in August, a 51 percent increase from a year earlier. With sales growing and the introduction of the PLI scheme, the country’s third-largest seller of cars may well consider capacity expansion.

“This announcement (PLI) is a significant milestone in India’s journey towards Aatmanirbharta,” said Girish Wagh, executive director of Tata Motors.

Flashback to Nokia

Ford’s decision to shut the Chennai factory is reminiscent of the closure of the Nokia plant, which took place for altogether different reasons.

The Finnish handset maker, which occupied the pride of place in the Chennai industrial landscape, decided to exit India after a tax dispute. It sold its devices and services division, excluding the plant, to Microsoft in September 2013 and shut down its plant at Sriperumbudur in November 2014.

A buyer had to be found for the Nokia handset plant. Finnish company Salcomp acquired the facility in 2019 to produce iPhone chargers for Apple in India.

Also Read: PLI scheme for automobile sector | How will it benefit the domestic industry?

In the Ford case, too, the government has to facilitate the finding of a buyer to save jobs, although the environment is far from easy at the moment, experts said. For one, most of the global auto majors are already in India. For another, the global automobile market is unstable with excess capacity. Locally, demand is still sluggish.

Ford’s options in order to sell its plants – given the overall scenario – are less than encouraging. However, the PLI scheme offers a glimmer of hope and the world-class Ford plants are readily available.

But then, Ford may have to settle its employees amicably before anyone even drops in for a discussion.
KT Jagannathan is a senior journalist based in Chennai
first published: Sep 17, 2021 01:59 pm

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