Clipped from: https://economictimes.indiatimes.com/industry/auto/auto-news/fords-cardinal-mistake-in-india-was-that-it-did-not-have-a-plan-b-hormazd-sorabjee-autocar-india/articleshow/86090869.cmsSECTIONSFord’s cardinal mistake in India was that it did not have a plan B: Hormazd Sorabjee, Autocar IndiaByTamanna Inamdar,Last Updated: Sep 10, 2021, 01:26 PM ISTSynopsis
“Ford was still desperate to stay in India because India is a good base for a lot of their export markets. But without a product pipeline, it was impossible to stay. That’s why they were looking for partners desperately to share their capacity. They were running at just 20% capacity. But without a partner, the business case just did not add up.”
Hormazd Sorabjee, Editor, Autocar India, sums up Ford‘s sorry India journey. Edited excerpts from his interview to ET Now’s Tamanna Inamdar:
Tamanna Inamdar: You wrote about a couple of weeks ago how this eventuality was coming. Is it because Ford could not crack the code on what of the Indian consumer wants?
Hormazd Sorabjee: They have been around for 27 years and all they have they got to show for it is $2 billion worth of accumulated losses and measly 2-3% of market share. So, obviously could not crack the code.
It is fundamentally a cultural or mindset issue with a lot of western manufacturers. Their cost structures and the way they think about cost are just totally out of whack with what needs to be done in India. For that reason, they wanted a partner in Mahindra.
Frankly, it would have been fine if they had partnered with Mahindra, because what was on the anvil was a range of products — about seven SUVs — between the two. But clearly, there was a falling out with Mahindra subsequently.
I think Ford’s cardinal mistake was that it did not have a plan B. It spent about three years with Mahindra working on this proposed joint venture which finally fell through. Ford lost those precious three years. That really is the fundamental issue, because now when you are back to square one and your next new product can only come after about two to three years, you cannot sustain operations with an aging product linage.
Ford is in a way still desperate to stay in India because India is a good base for a lot of their export markets — about 100 countries. But without a product pipeline, it was impossible to stay.
That’s why they were looking for partners desperately to share their capacity. They were running at just 20% capacity. But without a partner, the business case just did not add up. It was unsustainable and they had to pull the plug.
Going by the numbers, the Indian market is nowhere near capacity. Is that also something we have to consider — that the pie is not perhaps expanding at the rate that it should?
Absolutely. I could not agree more. The market is not growing and the market in that sense is no longer attractive. This dream market which India once was, has remained that — just a dream. It is really not realising its potential.
When Ford came into Sanand and invested a lot of money into the Sanand plant, it was on the basis that India would become a seven million market by this decade. That has not happened. I remember forecasts of five million by 2020. Okay, Covid has put a spanner in the works, but again the market definitely is not growing.
I think there are definitely structural issues. For one, the cost of car ownership has just become too expensive — whichever way you look at it. Also, the barriers to entry are still very high. You can expand the market with more players coming in. They bring in more models that also expands the market.
Then, you got this FortressMarutiNSE 0.68 % which has locked out the lower end of the market — the largest chunk. All in all, India may be selling in millions, but we are probably the most unprofitable large market because margins are wafer thin at the bottom end. And in that part of the market, only Maruti knows how to make money.
The way Maruti does it is just magical. The others have just given up. I mean they just do not want to fight it for that very reason that all the new players who are coming in are moving away from Maruti’s turf and going into the upper ends with SUVs. But then again, that becomes very fragmented. It is a much smaller piece of the pie. Finally, it is only if you are totally committed, you are ready to have a blood bath, can you succeed.
Not many foreign multinationals have the stomach for that, especially now when most are thinking: Should we be investing $500 million in India, or should we put that money in an electric pick-up truck which obviously is more profitable? So, really India is not that attractive a market.
India has also come down in priority in terms of everyone’s resources. Today everyone got finite resources, and they are deploying it in areas which will secure their future — electrification, new technologies like autonomy and markets that are more profitable. They are just not throwing good money after bad.
But what of the PLI for auto? Is that not going to open up the sector? Or is there still confusion?
At the end of the day, the one who decides whether you succeed or fail is the consumer. It first has to be done for the consumer. Are you making cost of ownership cheaper? Are you making car ownership easier? Definitely not. You can have all these schemes, but that won’t cut it.
Look at any dominant player — they are very strong first in their home market and only then you can think of exports. It is impossible to sustain just an export operation without having a strong domestic base. Even GM which was doing that has finally wound up.
So, one has to really address the whole issue of mobility, of car ownership. Of course EVs are coming, but do not forget that at the end of the day we are a very cost sensitive market. There is still a massive affordability issue. Our rates of motorisation are still very low. Unless you address this from the consumer’s point of view, I do not think the market will really grow the way it should.
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