Last week. Ford became the latest foreign car maker to leave the Indian market following a disappointing period for it in terms of gaining market share in the country.
But the company was apparently full of expectance when it had entered the market and built its first factory in India in the mid-1990s.
Indian auto market at that time was touted to be the next China. At that point in time, forecasts had been made of foreign carmakers getting a market share of as much as 10 per cent.
But reality did not meet forecasts, including for Ford.
Ultimately the American car maker left the market after accounting for a $2 billion hit and announced ending manufacturing of cars in India. Prior to Ford, two other American auto companies General Motors Co and Harley-Davidson Inc, also announced their decision ro leave the market because of continued losses.
The foreign car makers that remain in the Indian market include Japan’s Nissan Motor Co Ltd and Germany’s Volkswagen AG – the biggest automaker of the world by sales. Each of the companies have less than 1 per cent the car market which was once forecast to be the third-largest by 2020, after China and the United States, with annual sales of 5 million.
However, the market did not grow as fast as expected and remained stagnant at about 3 million cars, with a growth rate of just 3.6 per cent over the last decade compared to a growth rate of 12 per cent a decade earlier.
The exit of Ford form the Indian market also marks the end of the Indian ambition for US car makers and follows the exit of Ford from Brazil, announced this January. This reflects a shift of the global auto industry from trying out growth in the emerging markets to electric vehicles – which is seen as a make-or-break investment.
However market experts, executives and analysts have said that foreign companies, including Ford, had completely misjudged India’s potential while also underestimating the complexities of operating in a vast country that rewards domestic procurement.
Many of the companies missed the preference of Indians for small, cheap, fuel-efficient cars that could navigate uneven roads without needing expensive repairs.
95 per cent of the cars on Indian roads are priced lower than $20,000.
Makers of larger cars for Western markets also found it difficult because of lower tax on small cars. They were unable to compete with small-car specialists such as Japan’s Suzuki Motor Corp, which is the controlling shareholder of Maruti Suzuki India Ltd – the biggest carmaker by sales in India.
Among the foreign car makers that had invested in the Indian market over the last 25 years, the only one that has been successful according to analysts is South Korea’s Hyundai Motor Co, primarily because of its focus on developing a wide portfolio of small cars and an understanding of the wants of the Indian consumer.
“Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up, but the government failed to create that kind of environment and infrastructure,” said Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for the auto industry.
The price of most of the cars offered by Ford in India, including its “Escort” saloon that it offered in the late 1990s, shocked Indian customers, when compared to the price range of cars offered by Hyundai which were small and affordable such as the “Santro”.
Former Ford India executive Vinay Piparsania said that Escort’s price shocked Indians who were used to the affordable prices of Maruti Suzuki’s cars.
According to analyst Ammar Master at LMC, Ford also struggled because of its narrow product range which impaired it from capitalizing on the success of its best-selling EcoSport and Endeavour sport utility vehicles (SUVs) in the Indian market.
“The struggle for many global brands has always been meeting India’s price point because they brought global products that were developed for mature markets at a high-cost structure,” said Master.
“U.S. manufacturers with large truck DNAs struggled to create a good and profitable small vehicle. Nobody got the product quite right and losses piled up,” said JATO’s Bhatia.
“To continue investing … we needed to show a path for a reasonable return on investment,” Ford India head Anurag Mehrotra told reporters last week.
“Unfortunately, we are not able to do that.”
(Adapted from Reuters.com)