As Ford follows the footsteps of Harley Davidson and General Motors in leaving India, let’s find out how it is impacting the country’s automobile industry and the government’s “Make in India” strategy?
Other than being trusted American brands, General Motors, Harley-Davidson and Ford Motors have another trait in common: they failed in the world's fifth largest automobile market - India.
Recently, Ford announced its exit from the Indian market. After two decades of being present in India, it had captured a market share of only about 2%. The US passenger vehicle brand also noted that it suffered an operating loss of over $2 billion in the last decade and recorded an $800 million write-down of assets in 2019.
Image credit: Lenny Kuhne, Unsplash
"It's a big blow for Indian automotive manufacturing.Ford was the only carmaker that was shipping cars from India to the United States. The company is exiting at a time when the nation is discussing and considering production-linked incentives for automotives,” said Gaurav Vangaal, IHS Markit Associate Director.
In the last two years, a few other major American automakers withdrew their operations from India. General Motors ceased its commercial activities in 2017. Harley-Davidson took the same route in 2020 even after holding negotiations with Prime Minister Narendra Modi and the then US President Donald Trump, who sought concession on import duty for the company.
Lack of business strategy
Most of the American automakers hoped to cash in on their brand recognition and international grandeur, but failed to understand the Indian consumers. The lack of local “India first” business strategies resulted in them failing to capture the market successfully.
Some great examples are cars made by American automakers such as Chevrolet Beat, Ford EcoSport and Ikon. The brands, however, did not follow up with more cars for the millennials. Affordable, compact and value-based vehicles have been the need of the hour - which is one of the reasons why Harley-Davidson couldn’t sustain and brands like Hyundai and Maruti have been triumphant.
The Indian consumer is extremely price sensitive, so economical, compact cars are in demand. And this need is usually catered to by Asian carmakers.
Vahistha Unwalla, Lead Analyst at Care Ratings, tells Quartz India that most Indians do not have the ability to afford a car priced over Rs 5 lakh due to limited disposable income. This is the reason why only about 15% of the total automobiles sold in the country per year are passenger vehicles. Motorbikes and scooters makeup most of the sales.
“For any car maker to be successful in India, it is crucial that their product price points are on the lower side, their running cost is low, the distribution network wide and extensive, and after-sale services satisfactory.”
Big Blow to India
The exit of big American automakers has come as a big blow to the central government’s “Make In India” project which is aimed to showcase India as a global manufacturing hub.
About 64,000 jobs have been lost in the last five years, after the exit of auto companies like Ford, MAN Trucks, Fiat, General Motors, Harley Davidson and UM Motorcycles, according to data shared by the Federation of Automobile Dealer Association (FADA).
"Sudden exits by these MNCs have caused great distress to the entire auto retail industry. It has also hampered the zeal of entrepreneurs to do business, left the customers high and dry with no proper after-sales support. Crores of rupees have gone down the drain after killing the vision of entrepreneurs to get into business again," said Vinkesh Gulati, President, FADA.
So it is imperative for foreign automakers who are looking to succeed in India to understand its people, geography, culture and economics. Only a car designed in India and for Indians will do the magic. In addition to this, if the government works with foreign brands to address their difficulties, India can soon be on the map of global manufacturing hubs.
Edited by Roshni Shroff
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