Ford to stop making vehicles in India amid mounting losses and poor sales

Ford India will stop manufacturing vehicles in India but retain the engine-making and technology services business (Global Business Services) as part of restructuring its India operations. Approximately 4,000 employees are expected to be affected by this.

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.

“We are not exiting India. This is a restructuring of our business,” he said.

Jim Farley, Ford Motor Company’s president and chief executive officer, said in a statement: “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.”

Farley said despite investing significantly in India, Ford had accumulated more than $2 billion of operating losses over the past 10 years and demand for new vehicles was weaker than forecast.

Ford had been rethinking its India operations even before it had initiated discussion with Mahindra & Mahindra in 2019. It decided to cease manufacturing after considering all options, including contract manufacturing, he added.

It is the fourth US automaker to shrink India operations -- after Harley Davidson, UM Motorcycle, and General Motors -- in less than five years amid poor sales, high operating losses, high fixed costs, and a market that has failed to live up to the parent company’s expectations.

The world’s fifth-largest market for passenger vehicles and the largest for two-wheelers has seen the growth rates taper off in both the segments over the past decade owing to an increase in ownership costs.

The compound annual growth rate for passenger vehicles dropped to 3.6 per cent between FY10 and FY20 against 10.3 per cent in the decade before this.

Ford in India was caught in the wrong lane both due to external and internal factors. The pandemic and a subsequent divorce with M&M, even before the joint venture could take off, left little option for the struggling company.

Its market share plummeted to less than 2 per cent and annual volumes crimped to 41,875 at the end of FY21, forcing it to operate at suboptimal levels, almost 20 per cent of the installed capacity. Exports, which did salvage volumes in the pre-pandemic years, also fell 55 per cent to 39,897 units in the same period.

With restructuring, the Michigan-based company expects to create a sustainably profitable business in India. As part of the plan, Ford India will wind down the vehicle assembly in Sanand, Gujarat, by the fourth quarter of 2021 and vehicle and engine manufacturing in Chennai by the second quarter of 2022. But the company will continue to provide customers in India ongoing parts, service, and warranty support.

It will stop selling products such as the Figo, Aspire, Freestyle, EcoSport, and Endeavour once the dealer inventories are exhausted. It will continue customer support operations for these vehicles.

According to Puneet Gupta, associate director at I.H.S Markit, the company’s global vision of being a fully electric company is not in sync with the Indian market as Ford believes the market is still not ready for the electric vehicle revolution in the PV segment.

THE FORD GAMEPLAN

• To wind down vehicle assembly in Sanand by the Q4 of  of 2021

• To wind down vehicle and engine manufacturing in Chennai by Q2  of 2022.

• To cease selling Figo, Aspire, Freestyle, EcoSport and Endeavour once existing dealer stocks are sold

• To continue customer support for these brands with service, aftermarket parts and warranty