Ford has an uphill drive in India after snapping ties with Mahindra

Lack of scale despite a quarter century in India could stall its growth in the market after the break-up with Mahindra & Mahindra

Bajaj Group patriarch Rahul Bajaj best described the nature of auto joint ventures (JVs) over a decade ago on the sidelines of an industry conference in New Delhi. "Anytime, there's a tie-up between an Indian and a foreign company, this is what inevitably happens. The foreign player thinks they are superior because they bring in global knowhow and technology to the table. The Indian partner thinks they have the upper hand, because, after all, they are at home and know their market better than anyone else. But even if those notions get resolved, creating a single culture is almost impossible."

One could debate that in a world disrupted by electric vehicle companies, mass commoditisation of auto components and, until lately, shared mobility, car-makers worldwide had little choice but to ally or sink.

Which is why in the last couple of years, there have been alliance announcements that have included ventures between Toyota and Suzuki, Volkswagen and Tata Motors, and Ford and M&M. No surprises, but few of those tie-ups have fructified.

Ford and M&M, the latest to snap ties after much had been said about how they would build sports utility vehicles (SUVs) together, seem to be a victim of Covid-19.  What led to the end of the JV? A Ford India spokesperson said: “The outcome was driven by fundamental changes in global economic and business conditions — caused, in part, by the global pandemic — over the past 15 months. Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities."

How far had Ford-M&M progressed? Under the ongoing initiatives, Mahindra and Ford were working in the utility vehicle space to co-develop a midsize SUV (C-SUV), the Ford spokesperson said. "Mahindra and Ford agreed to share powertrain portfolios, including the supply of Mahindra powertrains to extend Ford’s product. Mahindra and Ford also co-developed a suite of connected car solutions for consumers."

Paris-based automotive author Gautam Sen said the break up has caught most by surprise. “Both sides must have done the deal in good faith, especially Ford, which perhaps didn't want to walk out on India like GM did,” he pointed out.

The official release sent out by Ford said the two car-makers would not complete the earlier announced automotive JV between their respective companies. The decision followed the passing of the December 31 “longstop,” or expiration, date of a definitive agreement the organisations signed in October 2019, the statement said. Ford said its independent operations in India will continue as is.

However, Covid-19 can't be used as a reason or even an excuse to divest of problematic arrangements, Sen added, suggesting that internationally such a break up will dent M&M's reputation much more than Ford's, given that JVs with Renault, International Harvester and so on have also failed. “The auto business shouldn't have decision-making happen overnight, because it's a very long-term game,” Sen said.

For both Ford and Mahindra, certain growing segments in the auto industry are still very lucrative.

As Kavan Mukhtyar, partner and leader-automotive, PwC India, pointed out, the evolution of automobiles has moved in the direction of two distinct car segments. “They include the compact crossover SUVs and then larger crossovers that are in the price range of Rs 20 lakh to Rs 30 lakh and which have historically been lacking in a lot of variety.” Crossovers are especially popular because they give consumers a feel of an SUV but drive like a sedan, he said.

But the majority of such JVs don't work out. Two out of three is the typical norm, Mukhtyar said. So while the future of SUVs in India is bright, Ford will have to up its game. For now it has a limited portfolio with the successful EcoSport getting long in the tooth. It is a six-year-old model and although there is a brand new version coming, there are product categories in which there are few Fords. Those include the mini car segment, sedans, and the category that is above the EcoSport and below the Ford Endeavour, which is its top-of-the-line premium seven-seater vehicle.

Although its product portfolio in the past has included hot sellers such as the Ford Ikon and the hatchback Figo, the only novel product in the last five years has been the Ford EcoSport, which did well initially but saw sales slow when other compact SUVs entered the market. Of a total of four locally-made cars, Ford India does have three small cars in the form of the latest Figo, the compact sedan Aspire and the mini crossover Freestyle. However, these haven't caught the fancy of the market. 

For Ford to cash in on these opportunities will require a renewed business focus.“The future of Ford in India as a separate entity is going to be a bit chequered. Although it is not likely to have a full-fledged India business, its focus on exports and global support will continue,” said Kaushik Madhavan, vice president, mobility practice, Frost & Sullivan.

The Ford Customer Service Division team in India will continue to support other regions globally. “Also, engineering, financial and IT services will get more focused going forward,” he said, adding, “Certain specific functions such as parts pricing and competitive benchmarking will be driven by India, for the Asian region, which will generate revenues for them.”

Yet, it's not like other foreign players aren't succeeding. Kia, which started operations in India just two years ago, is already selling approximately 150,000 units a year. Kia has also said that in public statements that it aims to achieve full manufacturing capacity of 300,000 units at its facility in Anantapur by 2022. Kia is already one of the country's top four car-makers by volume, and according to the company has 6 per cent of India's total market share. Ford, by contrast, has a market share of under three per cent.

Whether it works out for better or for worse for Ford and M&M after the split, what is certain is this: Scale in India is the key to survival and Ford is yet to acquire it.