Ford to raise outsourcing bill from India

In a bid to cut costs, Ford Motor Company (FMC), the world's third largest car maker, is planning to step up outsourcing of components, engineering services and IT related services from India.

Sources in the automobile industry said, Ford could increase purchasing of components from the domestic market from around $80 million now to $500 million in three years.

While Ford Motor Company's headquarters in the US (Dearborn, Michigan) and its offices in India refused to comment on this development, sources said that India and China would be two of the biggest beneficiary countries from FMC's plans to cut costs for the global operations.

William Ford's recent visit to India last year was in part to assess the viability of such a large scale increase in component outsourcing from the sub-continent, sources added.

It is also learnt that the outsourcing office, called the International Purchase Office for Ford in India, has been set up in Chennai.

"So far, this function was carried out of Ford India's plant in Maraimalinagar near Chennai. Now a separate outsourcing team has been formed and they have an independent office in Chennai," said a component maker, adding: "We have learnt that Ford has identified certain critical engine parts and many cold forged parts to be outsourced from India. However, energy-intensive parts like glasses (windshield) will be outsourced from China."

Dharuhera (Haryana)-based Rico Auto Industries Ltd is among the several component makers in the country vying for fresh orders from Ford Motors.

The company's managing director, Arvind Kapur, who was recently in Cologne, Germany and in UK to discuss deals with Ford Motor's representatives, said that though talks were on, his company was bound by confidentiality agreements and would not be able to discuss specific details.

However on the feasibility of FMC increasing its purchase bill from India to $500 million, Kapur said, "Going by India's potential to export components worth $25 billion by 2015, our ability to become a sourcing hub for companies like Ford could be much higher."

Power costs in China, which is half of what it is in India and better infrastructure for easier transportation has placed China at a more advantageous position than India for certain components.

"The opportunities for Indian component makers are mainly in areas where there is a high degree of engineering involved," said sources. Ford is already buying non-ferrous casting from Indian component makers.

On January 23, Ford Motor Company had announced its 'way forward' plan to restructure its operations that will see net material cost reductions of at least $6 billion by 2010 and reduction in plant-related employment by 25,000-30,000 in the 2006- 2012 time period.

The company will also adopt a lean and flexible manufacturing system, resulting in capacity reduction by 1.2 million units or 26 per cent by 2008.

As a part of this plan, 14 manufacturing facilities will be idled and will cease production by 2012, including a total of seven vehicle assembly units.