Ford Announces Production Halts and Job Cuts in India, Loses $2 Billion Over the Decade
In a recent announcement, Ford (F) revealed its intention to let go of approximately 4,000 employees and halt production in India immediately. Jim Farley, the company's CEO, stated that while the decision was difficult, it was a necessary step to achieve long-term growth.
Despite years of substantial investments in the Indian automotive market, amounting to over 2 billion US dollars since 1995, Ford encountered persistent operating losses exceeding 2 billion US dollars over the last decade. The company also noted a significant drop in demand for new vehicles failing to meet expectations.
Anurag Mehrotra, the head of Ford's operations in India, admitted the company had failed to establish a sustainable pathway towards long-term profitability that encompassed domestic vehicle production. He pointed out that numerous challenges, such as accumulated losses, enduring oversupply within the industry, and the absence of projected growth in the Indian automotive market, played critical roles in driving this decision.
Two of Ford's factories in Sanand and Chennai will shutter in the coming months. The company pledged to collaborate closely with the affected employees.
Ford has constantly grappled with issues in India, a country experiencing growth as the world's fifth-largest automotive market. Though the company began operations in India in 1995, it didn't gain significant market share. According to the Federation of Automobile Dealers Associations, as of July, Ford held just around 1.8% of the market share compared to 2.1% in the previous year.
India's leading automotive manufacturers, Maruti Suzuki (an Indian company owned by Japan's Suzuki Motor Corp.) and Hyundai Motor, dominated the market in July with market shares of almost 45% and 17%, respectively.
Industry experts were taken aback by the unexpected production halt despite Ford's extensive investments in India, citing the company's inability to understand the Indian psyche and invest wisely in areas appreciated by the consumers. For instance, Hormazd Sorabjee, Auto India's editor-in-chief, highlighted the costly production facility in Sanand as an example of Ford's ineffective cost management.
When Ford entered an agreement with local competitor Mahindra in 2019 to move most of its Indian operations to a joint venture, the negotiation ultimately collapsed in the latter part of the year. Both companies cited evolving global economic and business conditions, partially driven by the pandemic, for the deal's failure.
Ford is now the latest U.S.-based automaker to withdraw from India after General Motors announced the cessation of vehicle sales in 2017.
Though India seems promising from an external perspective, the market remains challenging. With a focus on cost-effectiveness, Ruchit Agarwal, co-founder and CFO of CARS24, an online used car marketplace, described the market as "price-sensitive." Agarwal pointed out that new vehicles often cost around 10,000 US dollars on average, and a handful of manufacturers have seemingly mastered navigating Asia's third-largest economy.
The Indian auto industry is in the control of only a handful of dominant manufacturers that identified how to operate in a competitive Asian market with high population density.
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