Editorial: Ford drives out

The exit of Ford Motors from India comes as a blow to the much-touted ‘Make in India’ campaign of the NDA government and reflects on the overall business environment in the country. The decision of the American auto major to wind up its operations in India and close its assembly unit in Gujarat and manufacturing […]

The exit of Ford Motors from India comes as a blow to the much-touted ‘Make in India’ campaign of the NDA government and reflects on the overall business environment in the country. The decision of the American auto major to wind up its operations in India and close its assembly unit in Gujarat and manufacturing plants in Chennai will result in over 4,000 employees losing their jobs. Though the government has claimed that the development would not affect investor sentiment because the company’s decision was based on operational reasons, the reality is that such exits do highlight the unfavourable business environment. While it is largely true that Ford’s exit is due to the intense competition from Japanese and Korean carmakers, there is no denying that high taxation on gasoline vehicles has been a real problem when it comes to getting more foreign participation. The high tariffs have also been a problem for Toyota, which decided against expansion in the country, while companies like Harley Davidson and General Motors also took the exit route in the past. While the government can be blamed for its conservative approach, the American carmaker has itself to blame for its failure to gain market share and fix its marketing problems. The company also shut its shop in Brazil after taking a $12-billion hit. It has incurred losses of $2 billion in India during the last 10 years and was still unable to find a good market for its cars.

Even after being in the country for over two-and-a-half decades, Ford’s market share is a mere 2%. Some of the problems that Ford faced in Brazil are similar to those it faces in India: high taxes and a highly unionised labour force. Other carmakers have barely managed to stay afloat, as can be seen from muted sales in the country. Sales of passenger cars in India, as per earlier projections, was expected to be around 5 million by 2020. However, it remains at about 3 million. Along with Ford and General Motors, other foreign automobile majors such as Toyota, Volkswagen and Renault-Nissan have been struggling in India where Maruti still controls the lion’s share of the sales. India is predominantly a small car market. These global majors are traditionally not very strong in the small-car segments, and they have not been able to have very strong small car production and distribution strategies. The Ford fiasco goes to show that if car manufacturers don’t have proper backup plans and a robust portfolio of models in India, they are bound to fail. On the other hand, the Centre’s insistence on switching to electric vehicles is expected to deepen the crisis for the car manufacturers.

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