Automotive sector: Emergency exit – UP Front News
In just 25 years of activity – not too long for an automaker – the Ford Motor Company of the United States has decided to leave India. Not that those years have been a smooth ride for the iconic maker of cars like the Model T, Thunderbird and Mustang. While Ford has had great success in India in models like the Ikon, Endeavor and EcoSport, others like the Mondeo and Fusion have not done well. The company had recorded cumulative operating losses of over $ 2 billion (around Rs 14,700 crore) and demand for its vehicles was low. According to Ford India President and CEO Anurag Mehrotra, the company has not been able to find a sustainable path to long-term profitability.
The scrapping in January of the joint venture with Mahindra & Mahindra, inked in 2019, made matters worse for Ford. The purpose of the joint venture was to develop, market and distribute Ford vehicles in India as well as certain Ford and Mahindra products in high growth international markets. After the joint venture was canceled, Ford’s chances of survival in the Indian market were reduced.
Ford has announced that it will close its Sanand, Gujarat plant by the fourth quarter of 2021 and end vehicle manufacturing and engineering at its Chennai plant by 2022. Ford India has around 4,000 employees. The Sanand plant can produce 240,000 vehicles per year and the Chennai plant up to 200,000 vehicles. Ford will continue to sell cars in India through imports. The media suggest high-end models like the Mustang Mach-E, Mustang and Ranger. It will also continue to provide support service to existing customers, the company maintains.
The exit of three large multinational auto companies in recent years does not bode well for India. General Motors left the country in 2017 following a decision to withdraw from unprofitable operations in a few regions, including India, Russia and Western Europe. Premium motorcycle maker Harley Davidson left India in 2020 as part of its ‘Rewire’ strategy to focus on select markets, such as North America, Europe and parts of it. Asia. Harley had suffered losses of $ 96 million (around Rs 710 crore) in April-June 2020. That may not be a big loss in and of itself, but it’s clear the company wasn’t expecting a loss. good request in the near future. The pandemic has only increased the challenges for automakers as they were forced to keep their outlets closed during the lockdown.
The Indian market had been particularly difficult for these multinationals due to the dominance of Japanese and Korean automakers. Maruti Suzuki holds around 48% of the market share and Hyundai India around 17%. Several multinational automotive companies have entered India in the post-liberalization period, driven by the business potential of a growing middle class and low household penetration of the automotive industry. The success of Maruti Suzuki (previously Maruti Udyog) was proof of this: the company, when it started, had an 80% market share!
Companies such as GM, Ford and Toyota have built up large capacities in India in view of future demand. However, the market did not grow as expected, especially for larger cars. “In a high-investment industry like the automotive industry, and a country like India where capital is expensive, capacity can be an albatross around its neck,” says Ravi Bhatia, president and director of JATO Dynamics India, a company automotive intelligence. For example, the prices set by Maruti in the 1980s – Rs 47,000 for non-AC models and Rs 70,000 for ACs – were hard to beat. Maruti focused on offering a cheaper car of reasonable quality with a good distribution and service network. Reductions in excise duties on cars under four meters further helped Japanese and Korean players. Bhatia adds that American and European companies have found it more difficult to make cars shorter than four meters because their expertise was in larger vehicles.
At the same time, demand has declined. Auto sales have seen a combined annual growth rate of just 1.5% in India over the past five years, upsetting the plans of multinationals that have invested heavily in the Indian market. The government announced a scrapping policy requiring mandatory inspections when car registrations expire. But it’s not clear if this will have a significant impact on vehicle sales.
In August, the auto wholesale sales figures fell 12 percent year-on-year. Industry attributed this to the semiconductor shortage, which impacted production, and high commodity prices, which increased vehicle costs. Add to that the rising cost of fuel, and demand for vehicles is expected to remain under pressure, forcing companies to rethink their strategy in a “cost conscious” market like India.
Across the world, automakers are engaged in major overhaul exercises as the pandemic weighs on their revenues. In addition, there is a noticeable shift in overall preferences towards “ACES” vehicles (autonomous, connected, electric and shared). Companies must invest heavily in this area. According to the Paris-based International Energy Agency, the number of electric cars in the world reached the 10 million mark in 2020, an increase of 43% from 2019. Battery electric vehicles represented both third of new electric car registrations in 2020. China, with 4.5 million electric cars, leads as Europe saw the largest annual increase in 2020 to reach 3.2 million vehicles.
While some automotive majors have left India, a few others have entered. MG Motor India, a subsidiary of Chinese automaker SAIC Motor, started operations in the country in 2019. Earlier this year, US electric car maker Tesla registered its Indian branch and is expected to set up a manufacturing unit there. he foresees sufficient demand.
Ford Motor Co. | Released: 2021 | Employees: 4,000
Capacity: 240,000 units per year at the Sanand plant (Gujarat); up to 200,000 in Chennai
Why: Cumulative operating losses posted of over Rs 14,700 crore; low demand for products; JV with Mahindra did not take off
Harley davidson | Released: 2020 | Employees: 70
Capacity: 12,000 bikes per year at the Bawal plant (Haryana)
Why: Focus, as part of its “Rewire” strategy, on selected markets, such as North America, Europe and parts of Asia
General Motors | Released: 2017 | Employees: 5,000
Capacity: A total of 225,000 vehicles in the Halol (Gujarat) and Talegaon Dabhade (Maharashtra) factories
Why: Decision not to invest in unprofitable operations in a few regions, including India, Russia and Western Europe