Q&A: Michael Boneham, president and MD, Ford India

Ford Figo has had dream debut, selling 50,000 units in six months. But building Figo meant a paradigm shift for Ford, which is not known for its small cars. In an interview with Business Standard’s Ranju Sarkar, Micheal Boneham, president and managing director of Ford India, explains what went behind the Figo and the road ahead. Edited excerpts:

How was your approach and strategy different for Figo?

Nearly 70 per cent of all cars sold in India are small cars. We have been around for a long time, learning, and weaving our experiences, on what India is all about. A few years back, we recognised that we needed a competitive price positioning, and started working hard on our value-for-money positioning. The only way to achieve that was to localise: so, Figo has 80 per cent localised components. We have also invested in an engine plant, manufacturing and assembly. With localisation, the cost of ownership has come down, the parts are available much easily and at much lower costs. We benchmarked the parts replacement cost with the best-in-class and did value-engineering, not just to address the price positioning but also bring down the cost of ownership. We have also strengthened our distribution network—in one particular week, we added 28 dealers, we have opened dealerships in the last three weeks, including one in Kathmandu, Nepal. (In all, Ford has 172 dealers today). These have been anchors which have made a difference.

The strategy was to achieve higher level of localisation, do local engineering, value engineering and bring down the contribution cost to be able to price the car between Rs 3.5 lakh – Rs 5 lakh. Beyond Rs 5 lakh, volumes start to taper-off. In the past too, Ford has done well in small segments with the Fiesta, the Fusion and the Ikon. But Figo is a game-changer.

How it meant a paradigm shift for Ford? How you had to think differently for Figo in terms of costs, design & engineering, sourcing, product development, pricing?

Yes, it was a paradigm shift for Ford. We had Fusion before but we could not price position it as it had poor localisation. For Figo, we did a lot of value-engineering to bring down the cost of the vehicle without compromising on the ride quality or performance of the car. Take the doors, for instance. In case of minor accidents and dents, which are common in India, the door has to be replaced completely after damage in most cases. In the case of the Figo, since the material (the sheet metal) has been sourced locally, one would need to just change the skin of the door instead of the entire assembly. This was a first-in-class feature offered in India. We did a lot of value-engineering. Take the AC compressor. If something went wrong with the unit in our cars, earlier one had to replace the entire assembly; now you can just replace that specific part. Earlier, there were issues with our AC compressors, the engines or wiring connectors. We have done value-engineering to bring down the cost of parts and ownership for the customer. Yes, we have trained the sales team to explain these to our customers.

How it was a paradigm shift for you? Ford and GM did not have any small cars...

...It was a paradigm shift for Ford. We said..if we are to grow in Asia-Pacific, we have to have vehicles in those segment. We need to change the types of vehicles we are producing globally. For Figo, the contribution cost (costs like raw material costs, labour and transportation), is much lower than Fusion, which had barely 30-40 per cent localisation. When you localise, you save on the duty, freight and if you can offer higher volumes, you can negotiate better prices with suppliers.

What were the challenges facing Ford when you took over? What was your brief?

My brief was to launch a best-in-class car (hatchback) at a price point the customer could not ignore. So, we worked on the inputs (internal) as well as on the output. We expanded our dealer and service outlets by 40 per cent to 172 outlets, from 120 earlier. (challenges facing the company:)... Ford was considered an interesting niche player, but we needed to get into the volume game, build cars for the volume segments. To be honest with you, there was no focus on India to deliver a product like Figo. Three years back, we realised we needed to change and focus on China and India. Today, every one from Alan Mullally to the middle, India & China is on their radar. We are planning to launch eight new models by the middle of the decade, which would require huge investments and focus. A majority of this would in the segment that constitutes 70 per cent of the market but that doesn’t mean that we won’t launch any aspirational car. The consumer profile and preferences are rapidly changing as people get wealthier.

Can you sustain Figo’s volumes? Were you surprised by the response?

In six months, we have done 50,000 units. We have to wait and see. Once we get the momentum and their are more cars on the road, people will be more interested. We will be able to maintain the volumes in 2011. .. We are happy with what we have done. It makes me feel happy. We have an installed capacity to 200,000 cars. We did not know how people would respond. But we are delighted as 50 per cent of our customers are first-time buyers of cars.

What’s the way forward for Ford India?

We have launched the Figo, we are working on a new car, and plan to have eight new products by mid decade. These will be global platforms, and will be smaller vehicles rather than larger vehicles.

How has the business become attractive? Earlier, people will be happy selling 60,000 cars a year; today they talk of installed capacities of over 200,000?

We are at a take-off point, which is being driven by the rise in per capita GDP. When the per capita GDP is around $4500-5000, you see a takeoff in four-wheeler sales. Many Indian cities have achieved these levels of income, which is driving sales but we also see tremendous growth potential in tier II and tier III cities driven by farm income. In 2002, the size of the four-wheeler market was 8 lakh, which in 2008 had grown to 2 million. In 2010, the market is likely to grow to 3 million unit---that’s the level of growth. In the last two years, it grew by 1 million while it had taken 6 years to 1.2 million. This is exponential growth, driven by economic imperatives, people are getting wealthier, which is driving sales of four-wheelers... Of course, this allows companies more opportunity to go after volumes. Scale is important (in this business) as you cannot localise with volumes of 15,000-20,000 cars a year. You need significant volumes. Many new entrants have come in with global products and expect significant growth. Market shares are important as you need a fair share of growth and segment.

...The capacities are being put up as many companies are using India as a strategic global hub for manufacturing. We have increased capacity from 100,000 in three shifts to 200,0000, and set up an engine plant of 250,000 units a year. This would also supply fuel-efficient engines for Ford units in other markets by middle of next year.

Exports is a key plank of your strategy. When will they take off?

Exports will take off from middle of next year. There are many left hand-drive markets. We have had great beginning in South Africa. Post-launch, we had exported an initial batch of 5,000 cars; they have already asked for 2,000 more cars and we are expecting more. Within 5-6 months of its launch, it is amongst the top ten models in South Africa as well as in India. We are exporting to Northern African hub, Emirates, Mexico. By next year, we would know better how we stack up. Like India, we did not have a car in that segment. But we expect domestic sales to contribute 70 per cent of our volumes.

Has the replacement cycle come down in India? I am told people are changing cars even before the tyres are worn out... What does your research say?

What we know is that many more people are converting to four-wheelers from two-wheelers. Fifty per cent of our customers are first-time car buyers, which is great for us if we can keep them in our fold. Many people are buying second cars as people get wealthier, and they are buying smaller, second vehicle.