Why is Ford Leaving India and Why Ford Failed to capture Indian Market?
Ford has announced that it will indeed stop manufacturing vehicles in both the plants, one in Chennai and another one in Sanand, Gujarat and The reason given is — The company has acquired up to $2 billion in the past 10 years and a $0.8 billion non-operating write-down of assets in 2019.
Ford has further stated that —
- It will cease to manufacture vehicle assembly for exports in the Sanand plant by the fourth quarter of 2021
- It will also cease to manufacture Vehicle and Engine manufacturing by the second quarter of 2022.
This decision will affect almost 4000 employees. It had entered the Indian market in the 1990s but has struggled to compete in the Indian market against the Japanese Automobile in spite of 2 decades of its existence it has captured only 2.2% of the Indian market.
While Kia Motors entered the Indian market in 2019 and managed to capture 6% of the Indian market.
Fun Fact: In just 2 years Kia managed to capture 6% of the market. But even after 2 decades, Ford could capture only 2.2% of the market.
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But why did Ford Fail to capture Indian Market?
There are many reasons as to why Ford struggled and Failed in the Indian market.
#1. Higher Tax Rates for Automobile Vehicles.
The Indian government imposes heavy taxes on automobile vehicles and it has been one of the reasons why foreign automobiles are hesitant to participate in the Indian market.
Even Tesla had earlier requested the government to reduce tax so as to facilitate the company to enter the Indian market.
The following is the typical breakup of Tax rates on Indian automobiles.
According to the above table, The tax imposed on Automobiles is approx 28% and the additional cess tax of 1–22%. In simpler words, smaller vehicles will have a tax rate of 29% whereas SUV’s have a whopping 50% tax.
EV’s have lesser tax rates so as to encourage people to buy Electric vehicles.
However, The tax rates are way higher compared to other countries which makes it difficult for people to buy cars.
According to some sources, Depending on the size and capacity of the car, approximately 40–50% of the car price goes to the government as tax
Higher tax rates are also one of the reasons why General Motors and Harley Davidson left India in 2017 and 2020 respectively.
#2. Disasterous partnership with M&M
At first, Ford partnered with M&M in 1995 but withdrew the collaboration in 1998. A Partnership with an Indian company can help the foreign company to study the Indian market. Since then Ford couldn’t find a suitable partnership with Indian companies compared to its Japanese companies counterpart.
For Example:
1. Suzuki — Maruti
2. Hero — Honda
3. Toyota — Kirloskar
It led to creating financial losses and eventually leave the country.
#3. COVID Crisis
Since the COVID crisis started and subsequent lockdowns, the automotive industry suffered Rs 2,300 loss crore per day and an estimated job loss in the sector was about 3.45 lakh as per Parliamentary Panel.
Global auto industry sales saw a sharp decline due to the shortage of semiconductor chips. Due to Lockdowns in Covid 19 around the world, The supply chains have been disrupted due to which there will be fewer vehicles produced this year compared to last year.
#4. Failure to understand Indian Market
Ford has failed to understand the needs of Indians in automobile marketing.
Now, what do most Indians want in their vehicles?
Most importantly they prefer —
- More Mileage in vehicles i.e 40–50KM/litre
- Lower Cost of vehicles
Since Ford manufactures higher-end vehicles and it gives lower mileage compared to Suzuki, Hyundai & Honda counterparts, it is not a preferable choice to buy for the majority of Indians.
#5. Expensive service and spare parts
Once you go to service centres and substitute the damaged part of the vehicle for another spare part, it tends to be more expensive compared to their Japanese counterparts.
For Example: For replacing the damaged Headlamps with a new one cost Rs. 2000 in Ford. Whereas in Maruti cars, the similar replacing the damaged headlamps with new ones cost Rs. 1000.
In such conditions, it is not possible for people to afford such costs and instead prefer to buy Japanese cars instead of American ones.
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Higher Taxes, COVID-19, Failure to understand the Indian market are the main reasons for Ford to Leave India.
