Ford’s hastily organised townhall by Indian management reflected the woes of the US automaker’s journey in India. It has been struggling amid weak domestic volumes, falling exports, and a lack of new products for the domestic market. It seems to be following the lines of General Motors, which exited India in 2017.
Stung by $2 billion in accumulated losses and a rapidly thinning market share, Ford held a town hall meeting Thursday with its employees to announce the closure of local manufacturing, joining American motown icons General Motors and Harley Davidson in calling time on their Indian operations.
Ford Motor Co is globally shelling out additional 1.7 billion dollars in cash to restructure its operations which includes curtailment of Indian operation and this is on top of the $2 billion accumulated loss incurred so far in India.
Ford ceases to be a mass-market brand in India, a geography it had entered nearly two decades ago. Its decision will affect more than 4,000 employees related to the local operations, although Ford’s global shared-services facilities in the country will remain unaffected.
On Thursday, Anurag Mehrotra, Ford India‘s head, and other top executives conveyed the grim news to employees, informing them that the maker of Endeavour would rapidly “ramp down” production of its local models – Ecosport, Aspire, Figo and Freestyle.
Under new global CEO Jim Farley, Ford Motor Co has taken several hard decisions to catch up with its global peers. Under Farley, the company decided to cease manufacturing operations in Brazil earlier this year.
The hastily organised town hall hosted by the local management of Ford reflected its chequered journey in India, where it has been struggling amid weak volumes, falling exports and lack of new products for the local market. Its US rival, General Motors, exited India in 2017, and Harley Davidson had also decided to ride out into the sunset after failing to garner sufficient volumes.
Ford’s failure to enlist a partner for its Indian business accelerated its exit as a mass-market brand in India.
ET was the first to report online on Ford’s plans Thursday afternoon. In its report on July 30, ET reported that the US carmaker would become an import-dependent niche player in the country.
In an official statement, Ford India said the company would cease manufacturing vehicles for sale in India immediately; manufacturing of vehicles for exports will wind down at the Sanand vehicle assembly plant by Q4 2021, and at the Chennai engine and vehicle assembly plants by Q2 2022.
“Ford will work closely with employees, unions, dealers and suppliers to care for those directly impacted,” the official statement added.
People aware of the exit talks said an India feasibility study, kicked off at the beginning of the year after the end to its partnership talks with Mahindra and Mahindra, did not point to a viable future that would meet Farley’s 2023 target of 8% operating profits.
On its part, Ford had reached out to at least half a dozen automakers to explore various options over the last couple of years to sustain its Indian operation of 25 years. ET had reported on July 30 that in the worst-case scenario, Ford might shut both its factories and move to an import-based business model.
Ford India has approached the Skoda-Volkswagen Group, Hyundai Motor, Tata Motors, Shanghai Automotive or MG Motor, Changan Automobiles, and some electric vehicle (EV) startups, including Ola Electric, to explore partnerships, contract manufacturing opportunities, or even sale of one of its facilities, as it sought to meet the mid-term target of 8% operating profit.
The Indian operations are understood to have posted about $1-1.5 billion in loss and write-offs recently, putting a question mark on sustainability.
Ford has so far invested more than $2.5 billion in India and was sitting on $2 billion of accumulated loss.
“It has been tough to deliver a viable business. We did explore all the possible options, no matter what we tried or investigated, our projection showed, we will continue to deliver suboptimal returns to the shareholders,” Mehrotra told media post the internal announcement. “We are left with no other option but to restructure operations – i.e. (shut down both the factories).”
The company will explore the import of low volume premium products. It will strive to retain all 150 dealers with a footprint of 300 showrooms and service centres to serve over 1 million Ford customers in India.
“Imagining Ford without vehicle manufacturing is difficult, but the capital is finite. It is important to deploy capital – where returns are adequate. It is a very difficult decision; we will remain committed to those impacted by the restructuring,” Mehrotra explained.
The company is working with potential buyers to sell both its factories. It will try to offer an equitable and fair compensation package to the employees affected by this closure, Mehrotra added.
“Now, we will start the conversation with our prospective partners, and the intent is to look at the sale of assets and employees together,” said Mehrotra.
It will continue to serve the existing customers and will hope to retain all the dealers.
“The intent is to give them a profitable business. We have a healthy car park – of 1 million with a 70% retention rate, so we hope that our dealers will be able to make money,” he stated.
The company would continue to import and sell its marquee Ford Mustang and Mach-E and full electrified models.
“Customers in India also will benefit longer term from the company’s plan to invest more than $30 billion globally to deliver all-new hybrid and fully electric vehicles, such as Mustang Mach-E,” added the official statement.
The Ford Business Centre and the product development centre that cater to the global operations will continue to operate. Even the engine plant that produces mid-size panther engines for global operations will continue to serve the global needs.
In the coming years, Ford plans to significantly expand its 11,000-employee Business Solutions team in India to support Ford globally, focusing on engineering, technology, and business operations centres of excellence.
“India will remain home to Ford’s second-largest salaried workforce globally; in addition to Ford Business Solutions, Ford India will continue engine manufacturing for export, as well as full customer support operations with service, aftermarket parts and warranty support,” the company said.