Struggling for more than two decades to make a mark in the Indian automotive space, it seems like Ford Motor Company has finally made up its mind to leave India. Ford has announced recently that it will be shutting down its car manufacturing plants in Gujarat and Tamil Nadu resulting in loss of jobs for about 4,000 employees. However, they have assured to provide their customers with spare parts and service.
As part of its restructuring plan, the US-based auto major has also added that it will quit local manufacturing and only sell high-end models in India through the import route. This came as a shocker and created quite some ripples.
The decline over the years
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 carmaker entered India 25 years ago but has a less than 2% share of the passenger vehicles market. After trying fruitlessly for several years, Ford called it quits on September 9, 2021, bringing curtains on all manufacturing and sales operations in the country in a phased manner.
In a statement, Ford said it accumulated operating losses of more than $2 billion in 10 years in India and demand for its new vehicles had been weak.
The move was prompted by the mounting losses and slowdown in India’s passenger vehicle market, and the crisis the pandemic brought, Anurag Mehrotra, president and managing director, Ford India, told reporters at a virtual press meet on Thursday.
Despite (our) efforts, we have not been able to find a sustainable path forward to long-term profitability
Alongside, product launches were slow and variety was all but non-existent. And most observers feel Ford India never really catered to the people’s needs.
What the stats say
The company made revenues of ~28,000 crores in FY2019 and a net profit of 211 crores in the same year. But then in FY2020, the revenues dropped to a measly 2,000 crores with the company having lost close to 5,400 crores.
Ford India’s revenue from operations will crimp to less than a fourth of its 2020-21 (FY21) tally, with the announced closure of its automotive operations, according to India Ratings & Research. Ford India’s 2021-22 revenue is expected to be Rs 2,000-3,000 crore, a sharp fall from Rs 13,516 crore in FY21.
Even as the revenue is set to shrink, the local arm of the Detroit-based automaker still has strong cash and equivalents balance of Rs 331 crore as on September 15, compared to nearly Rs 380 crore in FY21.
As on September 15, Ford India’s net debt stood at just over Rs 6,316 crore, compared to FY21 tally of nearly Rs 5,230 crore. Seventy per cent of this is in the form of inter-corporate loans from its parent, Ford Motor Co.
What happens to the Indian dealers
The 170 dealers have 391 outlets and have invested approximately Rs 2,000 crore for setting up their dealerships.
Cumulatively, dealerships employ around 40,000 people. Dealers currently hold 1,500 vehicles, which amount to Rs 150 crore via inventory funding from reputed Indian banks.
Ford India is therefore planning for a compensation formula as it prepares to exit India as part of a restructuring it announced on September 9. Accordingly, it met its principal dealers on Wednesday to work on the same. Most of the company’s 170 dealers signed a non-disclosure agreement – a precondition set by the company to start negotiations. In a response to a query on the company’s dealer compensation plan, a spokesperson for Ford India said,
We have a plan that ensures continued viable business for our dealer partners. We like to share those details first with our dealer partners than anyone outside.
Where the company stands right now
Largely, the Indian automobile market is dominated by Japan’s Maruti Suzuki and South Korea’s Hyundai, both of them together constitutes 60 per cent of total market share. On the other hand, Ford managed to have a market share below 2 per cent since last many years.
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. The Ford India spokesperson said the company is working with its dealers.
However, 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.