The decision of Ford Motor to move most of its Indian operations into a new joint venture with native Mahindra & Mahindra (M&M) has been coming for a long while now.
Its decision to settle for a junior status in the new venture, however, gives a clue or two as to the larger health of the Indian economy.
It wasn’t long ago that Fiat and General Motors left India. The Ford move, in this instance, is being seen as a part of its overall effort to pare losses. The company has shut five plants in Europe, and is drastically scaling down its salaried workforce across the globe. The slowdown in China and the US have hurt global auto majors and the focus on electric vehicles and self-driving technology has redefined the game plan for many of them.
After investing over $2 billion over two-and-a-half decades though, Ford has now discovered that India is perhaps not that shining. Nevertheless, it has chosen to retain engine plant Sanand and its global business service unit in India.
Coming full circle
In a way, the wheel has come full circle for this multinational company. It set up its manufacturing plant near Chennai with M&M in alliance as a hand-holding junior partner.
Ford set up shop in Chennai initially thanks to the persuasiveness of Suresh Krishna, the father figure of the TVS family. It was Krishna who convinced the Mahindras (who were partners with Ford then) to come to the city of Chennai, a major auto hub in India. That the current chairman of the Mahindra group, Anand Mahindra, studied in Tamil Nadu was also not lost on the observers of the auto scene in the 1990s.
Somewhere down the years though, Ford took full control and went on to set up its second plant in Sanand in Gujarat.
One can also argue, equally effectively, that Ford came to India a trifle late, and also entered with a set of wrong products. A significant chunk of the Indian market is dominated by mass market cars. South Korean major Hyundai has capitalised on this to give home-grownMaruti a tough run for its money.
But Ford misread the Indian market, with its focus on high margin products. The company’s management in India also did not distinguish itself in communicating effectively to stakeholders across the canvass.
There is little doubt that the metamorphosis that Ford is currently undergoing in India also has a justification from a global perspective. But the importance of the change in its operations is also equally significant in the Indian context. Car sales have skid consistently month-on-month for a while now. Two big names have already bid bye to India. And, now comes the Ford move.
What is hurting the Indian car makers? Is the duty structure the culprit? Or, is there a over-supply situation in the marketplace? Even as major car-makers are playing cry-baby, the Centre is still trying to decipher the reasons for slump in sales. The concept of shared mobility is, no doubt, fast catching up. Given the cost of ownership, hassles related to owning a four-wheeler and poor roads, shared mobility is here to stay for a long time to come.
But we have seen companies like Nissan and Renault share a common manufacturing facility in India (near Chennai). ‘Staying lean and staying happy’ is increasingly the new mantra in the modern world. If the demand slump continues, this will have serious repercussions for the Indian economy since auto and ancillary units provide substantial direct and indirect jobs and have been important drivers of the Indian economy. The government will do well to recognise the emerging symptoms and quickly embark on a corrective road.
Much of the talk and action appear to be on the supply side. The situation as it obtains today requires a demand side focus. And, that calls for putting more money in people’s pocket. Jobs, more jobs and still more jobs is the only solution. And, the onus at the moment squarely lies on the government of the day. The moot point at the moment is – will India’s auto sector remain a key driver of growth? Unfolding events indicate otherwise.
K.T. Jagannathan is a senior business journalist based in Chennai.