Huge accumulated losses and tepid sales lead to Ford India calling it quits in the country
For automobile industry watchers and journalists covering the automotive beat, it was a matter of when, and not if, Ford India would shut down operations. And, when Ford India announced Thursday, it would stop making cars at its two plants – Maraimalai Nagar, near Chennai, and Sanand in Gujarat – it took no one by surprise.
Those dependent on the company, the nearly 4,000 employees and several more indirect employees, face an uncertain future. The many officials in the Tamil Nadu Government who worked tirelessly behind the scenes in 1995-96 to get the American automobile giant to set up base in the State rather than go to Maharashtra, which it's then-partner Mahindra & Mahindra was pushing for, may be disappointed with the turn of events.
Over the years, Ford India has had some good products, but unfortunately, the cars did not sustain the interest of buyers beyond the first few months after the launch. Even recently, the company announced a revamped EcoSport and an automatic version of its hatchback Figo.
The company was exporting cars made in India to global markets, including South Africa and North America. The company’s accumulated losses are in the region of $2 billion.
Ford had explored several options, including partnerships to continue its operations in the country. It tied up again with M&M, but that too did not last long. Since the launch of its first car in India, an entry-level sedan, the Ikon, the ride has not been smooth for Ford.
A little bit of background to the whole Ford in India story is in order here. Ford’s entry into India was also about the second wave of manufacturing-led industrialisation of Tamil Nadu.
The first wave happened in the late 1950s and early 1960s under Chief Minister K. Kamaraj, when industrial estates were set up in the then Madras (now Chennai), and a number of automobile component companies led by the TVS and Amalgamations groups came up.
Tamil Nadu accounted for a third of the auto component sector in the country and Ford choosing the State for its India operations in the 1990s gave a further impetus to the components sector. There had not been any fresh OEM plant of scale in the State for quite some time.
When it was known Ford was contemplating entering India, leading industrialists in the components sector worked with the Tamil Nadu Government to woo the American multinational.
The components sector was worried they would be forced to go wherever Ford chose to start manufacturing from. The fear was Tamil Nadu would lose its edge in the engineering manufacturing space.
In 1995, Ford was in an alliance with the Mahindra Group for its India operations with the joint venture company called Mahindra Ford India Ltd. M&M was pushing for the plant to come up in Maharashtra, which was its home base.
Ford, on the other hand, was keen to explore options and evaluated various locations on as many as 40 parameters. These included availability of skilled manpower, social infrastructure, support from the local government and overall industrial climate.
What clinched the deal in Tamil Nadu’s favour was probably the team of officials including N. Narayanan, Finance Secretary; C. Ramachandran, Industries Secretary; S. Arvind, Chairman and Managing Director, Tamil Nadu Industrial Development Corporation (TIDCO), the State Government agency tasked with industrial promotion; and, M. Raman, Director, Industrial Guidance and Export Promotion Bureau.
Of course, Chief Minister J. Jayalalithaa, who was at the tail end of her first tenure and had her back to the wall facing allegations of massive corruption, asked the officials to pull out all stops to get Ford to the State.
TN woos Ford
With the backing of the top political leadership, the bureaucrats left no stone unturned in getting the American automobile giant to the State. Journalists covering the State Government distinctly remember one meeting a team of Mahindra and Ford executives had with Chief Minister Jayalalithaa and her team of officials at the Secretariat in Fort St. George.
After the meeting, a senior executive from Mahindra & Mahindra told waiting journalists that “we have lost it!” The Ford team was simply overwhelmed and awestruck with Jayalalithaa’s flawless English and the style with which she served refreshments to the delegation.
The Tamil Nadu Government came up with an attractive package of incentives, including sales tax waiver/deferral to woo Ford, through a new policy for projects with investments exceeding Rs 1,500 crores.
The Government Order itself for this package of incentives was issued on January 2, 1996, just a day before the Government signed an agreement with Ford for the plant at Maraimalai Nagar, about 35 km south of Chennai.
The package of incentives came in for a lot of criticism, with the then opposition Dravida Munnetra Kazhagam (DMK) alleging massive corruption in the deal and others accusing the Government of a sell-out to a multinational.
The fact remains that it was because of Ford that Tamil Nadu saw a fresh wave of investments. The Korean car company, Hyundai, then an unknown commodity in the country, followed, almost copying the memorandum of understanding Ford had signed with the Tamil Nadu Government.
However, elections were announced and the Jayalalithaa Government could not sign the agreement with the Korean company. It was left to the DMK government led by M. Karunanidhi, who took office in May 1996, to follow up on the agreement with Hyundai and sign the deal.
Of course, the DMK Government raised a lot of issues, unceremoniously shunted out three of the officials who led the negotiations with Ford Motor Company, even placing under suspension a senior official on his last day in service!
Thankfully, saner counsel prevailed and wooing industries to the State continued in right earnest in the DMK Government too.
Global OEMs follow Ford to TN
It was thanks to Ford’s entry into Tamil Nadu, that Hyundai and other global companies such as Saint-Gobain, the French manufacturer of float glass, Renault-Nissan, and a host of component manufacturers set up base in the State, either on their own or in partnership with local players.
In its initial years, Ford faced numerous hurdles from the Government, which always viewed it with suspicion since the agreement was signed with the Jayalalithaa Government. But things moved.
Hyundai signed an agreement with the State a few months after Ford did. And it was fast off the block. It built its plant at record speed, launched its first car in India, the Santro hatchback before Ford put its ‘Made in India’ car on the roads.
While Hyundai set a scorching pace, Ford believed it was always measured in its steps and strategy. The fact remains that for the Ford global leadership, India was just a far-flung outpost, while for Hyundai, then not a global player that it is now, this was a make-or-break strategy.
Ultimately, the India plant ended up being the jewel in Hyundai’s crown.
Ford India’s first product was an entry-level sedan Ikon, a car designed with global inputs for the Indian market. By the time the Ikon hit the roads, Hyundai India had come up with its second car, the Accent, also an entry-level sedan.
Ford India, despite its perceived brand superiority, was forced to match the Accent in pricing the Ikon.
Over the years, Ford has had some excellent cars, but none of them set the market on fire. Apart from brisk sales immediately after the launch, the cars did not excite the buyers.
The Fusion, which in many ways is the forerunner of the present-day compact SUV EcoSport, was a case in point. It had excellent engines in both petrol and diesel, was fun to drive and had an enormous cabin and boot space. It was a model far ahead of its time.
The Fusion could be described as the trendsetter for the compact SUV segment, which now has many contenders such as the Hyundai Venue, Kia Sonet, Maruti Brezza, Tata Nexon, Mahindra XUV300, Renault Kiger and Nissan Magnite.
Ford, because of its history and legacy, always believed it knew what the customers wanted. Hyundai, on the other hand, did not have any such hang-up, listened to the customers and gave them products that they wanted and those that excited them.
The attitude itself was different.
Take a small example as the placement of the knobs for the turn indicator and the wiper. In Indian cars, the knob for the turn indicator is on the right side of the steering wheel and that for the wipers on the left side.
In US and European cars, which are left-hand drive markets, it is the other way around – the indicator knob is on the left side of the steering wheel and that for the wiper on the right.
Even though Korea is a left-hand drive market, Hyundai realised if it had to crack the Indian market, it should not try to change the driving habits and instead provide customers what they are used to. The result was that Hyundai cars in India have the same pattern – turn indicator on the right and wiper knob on the left side of the steering wheel.
All that it required probably was a little bit more investment in tooling, which the American and European companies were not willing to do. One wonders if at all they were listening to their customers!
From the beginning, Ford was perceived to be expensive to maintain the brand, while the reality may not be true. Ford did not do much to change this perception.
Besides, Ford executives always had this attitude that Indian customers had to consider themselves privileged to drive a ‘Blue Oval’, as the brand was known by, and not that they were privileged to sell the cars to customers here.
It is one of the reasons the Indian market is dominated by two Asian brands – Suzuki, which is a clear market leader, and Hyundai, which is the second-largest manufacturer.
The first car Ford launched in India was a technologically outdated Escort, assembled at M&M’s plant in Nashik, Maharashtra. Which itself, many believed then, was poor strategy.
Your first product is supposed to represent your aspirations, ambitions, and strategy for the market. Sadly, the Escort conveyed all the wrong impressions about the company.
Interactions with John Parker, who was the first Managing Director of Mahindra Ford India, and who oversaw the initial stages of the plant construction, always used to talk about the safety features of Ford cars.
Unfortunately, Parker and his successors did not do much to ensure the safety and longevity of the company they built in India.
Perhaps because, for the global leadership, the India operations were still too small for them to pay greater attention to and allow the local team to come up with its own products and strategy.
Ultimately, the continued and huge accumulated losses forced the global leadership to pull the plug on the India manufacturing plans.
—N Ramakrishnan is a Chennai-based freelance journalist with over three decades of experience. The views expressed are personal.
(Edited by : Yashi Gupta)