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Ford India Private Limited announced recently that it would be shutting shop in India, after nearly 30 years of involvement in the Indian market. While the news may come as a surprise for many, it must be noted that Ford has accumulated more than $2 billion in losses over the last decade. It has also been steadily losing market share in India, with companies like Hyundai, Maruti Suzuki, and Tata Motors becoming the dominant players in key segments.

Ford re-entered India in 1995 after forming a 50-50 joint venture with Mahindra & Mahindra Ltd. Within just three years, Ford increased its stake to more than 70% upon which it formed the company ‘Ford India Private Limited’. It set up its first manufacturing facility in Tamil Nadu, after being swayed by Suresh Krishna, chairman of the TVS Group. With the reputation that Ford had built over the 20th century, it seemed poised for success in India.

At the same time, however, Hyundai, who at that point in time were yet to make themselves familiar with Indian consumers, also set up operations in Tamil Nadu. To explain how Ford met its eventual fate more than two decades later, it would do well to look at how Hyundai conducted its business.

The first two vehicles launched by Hyundai in India were the Santro and the Accent, the former being a hatchback and the latter a sedan. Hyundai also struck a successful partnership with Shah Rukh Khan, who at the same time had ascended to super-stardom in India. This relationship between the actor and the carmaker proved to be particularly fruitful and this is evidenced by their continued association even after all these years. Hyundai instantly imprinted themselves onto the minds of Indian consumers with this move, along with some carefully thought out relationship management with the ecosystem at large. They hired BVR Subbu, who was previously general manager at Tata Motors for nearly two decades, to head their operations in India.

Ford on the other hand completely ignored the entry-level segment which was made up of small cars like the Santro, WagonR, etc. and focused solely on the mid-segment sedan with its Ikon. It also chose against roping in a big name celebrity to endorse its brand and its top-level management consisted primarily of foreigners.

Ford’s mistake seemed to be in its judgement that it would get by on brand recognition and quality alone. While there was nothing wrong with the Ikon as a vehicle, it was never going to sell at a rate that would justify not having any products in the entry-level hatchback category. It took Ford until the mid-2000s to come out with the Fiesta to seriously challenge for market space in this segment.

Ford also failed to connect with the Indian market in the way that Hyundai did. The Shah Rukh Khan endorsement certainly went a long way, but they were also smart to hire a veteran of the Indian auto industry in Mr BVR Subbu. Ford’s management was made up of foreign executives whose expertise simply wasn’t a good enough fit for the Indian market.

Hyundai only went from strength to strength by introducing vehicles like the i1o and i20, Verna, Elantra, and more recent models like the Creta, Venue, etc. Hyundai has also made servicing its vehicles very cheap in India, something that Maruti Suzuki also made sure to provide. By understanding the Indian consumer, their level of wealth, and their expectations of automobiles, Hyundai has placed itself firmly in the market as one of the major players.

Ford introduced vehicles like the Figo, Eco Sport, and Endeavour, and they all had a relative amount of success at various points in time. The problem was that by the time they came out with these models, other manufacturers were already ahead of the game with more entities entering the market as well. In FY2000, Fords sales stood at 8000 which had increased to 93,000 by FY2020. During the same period, however, their market share grew negligibly from 1.1% to a mere 1.8%. There was a period around 2010 when Ford’s market share rose to around 3%-4%, but it failed to spur on its growth from this point. As of 2021, Maruti Suzuki makes up nearly 48% of India’s automobile market with Hyundai and Tata coming in at second and third with 17.4% and 8.2% respectively.

Over the last few years, the utility vehicle segment has seen tremendous growth in India. Here too, Maruti Suzuki and Hyundai made sure to adequately serve Indian consumers with vehicles like the Creta, Tucson, Brezza, Ignis, and so on. Ford manufactured the Endeavour and Eco Sport and it reached a peak of 9.5% market share during FY2015 in this segment, but once again the top two players in the country dominated the segment with more than 20% each by FY2021, when Ford’s share dropped to just 3.3%.

While Ford’s exit may serve as a case study in the future, there are some serious consequences to their departure today. There are currently 170 Ford dealers with 391 outlets across the country. Dealerships in India are mainly SMEs and are often family-run, and the investment needed to set one up is at least Rs. 5 crores. There are an estimated 40,000 employees working at these establishments and many of whom are technicians trained to work specifically on Ford vehicles. With Ford leaving so abruptly, stating that it would shut down all operations by the second quarter of 2022, the futures of all these dealerships and their employees are currently up in the air.

This is a situation wherein the government may have to get involved and force Ford to stay for a certain amount of time and also ensure that the company adequately compensates the dealers for the losses they will incur. Most countries have a ‘Franchise Protection Act’ which prevents companies from abruptly closing down and leaving, especially when there are such a large number of people whose livelihood depends on their existence.

A limited product catalogue, poor understanding of the Indian market, and a lack of an effort build a strong relationship with the consumers here can be blamed for Ford’s misgivings in India. At the end of the day, an accumulated loss of $2 billion over a ten year time period is something that a company as big as Ford can afford. Their decision to exit therefore indicates that they do not see a path to a successful future here anytime soon.

For feedback, write to pavan@bclindia.in

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