American auto major Ford Motor Company 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".
Ford will 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.
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.
Following accumulated operating losses of more than $2 billion over the past 10 years and a $0.8 billion non-operating write-down of assets in 2019, Ford is forced to do a restructuring to create a sustainably profitable business in India, the company further added.
Jim Farley, Ford Motor Company’s president, and CEO, Ford Motor Company said, "As part of our Ford+ plan, we are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas. Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years, and demand for new vehicles has been much weaker than forecast.”
Ford India said it took these restructuring actions after investigating several options, including partnerships, platform sharing, contract manufacturing with other OEMs, and the possibility of selling its manufacturing plants, which is still under consideration.
"Despite these efforts, we have not been able to find a sustainable path forward to long-term profitability that includes in-country vehicle manufacturing. The decision was reinforced by years of accumulated losses, persistent industry overcapacity, and lack of expected growth in India’s car market," Anurag Mehrotra, president, and managing director of Ford India.
Approximately 4,000 employees are expected to be affected by the restructuring. Ford will work closely with employees, unions, suppliers, dealers, government, and other stakeholders in Chennai and Sanand to develop a fair and balanced plan to mitigate the effects of the decision, the company added.
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.
The company will also maintain a smaller network of suppliers to support engine manufacturing for exports and will work closely with other suppliers to ensure a smooth wind-down of vehicle manufacturing. It also will continue to rely on India-based suppliers for parts for its global products, and suppliers and vendors supporting Ford Business Solutions will continue to support the business as normal.
Ford has been a loss-making local entity burdened further by the COVID-19 disruption, and a dated product portfolio. As of July, Ford was operating at just around 20 percent of the installed capacity of 450,000 units that it has across both the plants, as per data shared by the Society of Indian Automobile Manufacturers (SIAM).
Ford has invested over $2 billion in India at Chennai and Sanand manufacturing plants. The 350-acre Chennai plant has a vehicle-making capacity of 200,000 units and 340,000 engines a year. The Sanand plant spread over 460 acres, which is the younger of the two, has a vehicle-making capacity of 240,000 units and 270,000 engines a year.
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.