The global auto industry is still grappling with a shortage of semiconductors and other components owing to supply chain interruptions, so Ford Motor Company announced last week that it will discontinue building cars in India.
The firm, based in Dearborn, Michigan, has been operating in India for 25 years and is now following in the footsteps of other American automakers such as GM and Harley-Davidson by closing its plants there.
Ford said on Thursday that it had explored a number of possibilities but had “not been able to establish a viable route ahead to long-term profitability that includes in-country car production.” Over the last ten years, the firm has lost more than $2 billion in losses, and new car demand has been poor.
Hormazd Sorabjee, the editor of Autocar India, told, “It’s basically a culture or attitude issue with a lot of western automakers.” “Their cost structures and cost thinking are completely incompatible with what has to be done in India.” Ford’s departure occurs at a time when the car industry as a whole is experiencing a global shortage of semiconductor chips and other components. As the epidemic drove millions of people to work from home, supply lines were interrupted by lockdowns and other factors, chip demand has increased.
Ford estimates that the reorganisation would cost the carmaker around $2 billion and will affect approximately 4,000 people when it ceases production at its facilities in Sanand, Gujarat, and Chennai, Tamil Nadu. More than 500 people will be employed at the Sanand factory to continue producing engines for export, with another 100 needed for parts distribution and customer care. Existing dealer stocks of the company’s current vehicles, including the Figo, Aspire, Freestyle, EcoSport, and Endeavour, will be depleted.
The departure of the carmaker comes at a time when the Indian passenger vehicle market has been declining for the previous five years. According to the Society of Indian Automobile Manufacturers, passenger car sales in 2020-21 (after the April-March accounting period) were 2.71 million units, up from 2.77 million units the previous year (SIAM). In 2018-19, sales hit a high of 3.37 million.
As part of its reorganization strategy, Ford stated that it plans to grow its Ford Business Solutions businesses, which presently employ more than 11,000 people. The team will support worldwide operations while concentrating on engineering and technology. According to the announcement, the expansion would provide more possibilities for software developers, data scientists, R&D engineers, and finance and accounting experts.
Ford entered India in 1995 as a joint venture with Mumbai-based Mahindra & Mahindra, which was primarily a maker of tractors and utility vehicles at the time.
It built a greenfield facility in Chennai from which it released its first product for the Indian market, a mid-size, entry-level sedan called Ikon. After a few years, the collaboration with Mahindra terminated, only for the two to re-join forces in 2017. Even this did not last long, as the relationship was terminated before the end of 2020.
After two decades in the nation, General Motors discontinued selling automobiles in India at the end of 2017. It sold one of its facilities to a long-term partner, China’s SAIC Motor Corp, and was in discussions to sell the second facility to Great Wall Motors of China, a plan that had to be put on hold owing to the Covid-19 epidemic as well as border stumbling blocks.
Harley-Davidson, a more recent arrival into India, ceased assembly activities in the nation in 2020 as part of its worldwide restructuring strategy. The Donald Trump Administration attempted but failed, to persuade India to lower import taxes on imported motorbikes.