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Ford re-evaluates "India Strategy"

Publish Date: 2021.02.26

        This is another cost and profit account.


        A few weeks after Ford Motor and Mahindra Motor canceled their plans to establish a joint venture, three people familiar with the US automaker’s plan told the media that Ford Motor has suspended all ongoing projects with Mahindra and is simultaneously evaluating a joint venture. A new "India Strategy".


         A person familiar with the matter said: "These strategies may include establishing a new partnership with Mahindra or completely terminating the relationship and developing related models."


        Two other people familiar with the matter said that they expect Ford to make a decision within a month or so whether to continue trading with Mahindra in other ways, adding that Ford CEO Jim Farley wants to see A path to greater profitability in India.

福特

         As early as September 18, 2017, Ford and Mahindra issued a joint statement stating that the two parties will form a strategic alliance and cooperate in intelligent network connection, mobility, electric vehicles and procurement to consolidate their position in the Indian automotive market. In the unprecedented major changes in the automotive industry, cooperation in these areas will give full play to each other’s advantages."


          On October 1, 2019, Ford officially stated that it would establish a US$275 million joint venture with Mahindra in India to save the struggling automotive business in India. According to the agreement, Mahindra will hold 51% of the new company and Ford will hold the remaining 49%.


         The joint venture proposed by Ford and Mahindra will develop at least three models for India and emerging markets, and involve suppliers, powertrains and technology sharing. But in the end, Ford announced in December 2020 that due to the impact of the new crown epidemic, it would cancel its plan to establish a joint venture with Mahindra.

福特

          As early as 2018, Ford announced an investment of 11 billion U.S. dollars to start a restructuring plan. Since Farley became CEO of Ford in October last year, Ford has been working on restructuring globally, including ending production in Brazil and accelerating the introduction of electric vehicles.


         Ford entered the Indian market 25 years ago, but only accounted for 3% of the Suzuki and Hyundai's wide-ranging low-cost car-based market. People familiar with the matter said that although Farley’s funds are too much, it cannot stand the limited resources on a global scale. Therefore, the priority of the Indian market is lower and restructuring is faster.


        Although the cooperation with Mahindra will enable Ford to launch new cars faster, with lower costs and less investment, thereby providing Ford with better opportunities with competitors. But after the joint venture was cancelled, Ford said its independent Indian business will continue.


        Ford spokesperson Kapil Sharma said: "We are reviewing our business strategy, making choices and making capital allocations as planned to achieve the company's adjusted EBIT margin of 8%, and Generate sustained and strong cash flow."


        But for Mahindra, cooperating with Ford was an opportunity to enter a new global market, but abandoned the deal because of concerns that its return on investment was too low. Mahindra also evaluated its business in the North American market last year. The company hopes to save capital and keep only those businesses that can be profitable or have profit potential.


        Mahindra revealed in a statement that they are looking for a non-joint venture between the two parties. Related sources said that Ford is weighing all the plans of the joint venture with Mahindra and will review which plans it plans to keep from a profit perspective.

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        The most important of these is a medium-sized utility vehicle equipped with Mahindra engine. Ford plans to launch this vehicle in 2022. The goal is to sell about 50,000 vehicles in India each year. Ford also plans to launch two other utility vehicles in 2023 and 2024. The plan is to use Mahindra engines. Two people familiar with the matter said that if the deal is abandoned, Ford will need to find another supplier or invest in upgrading its own engines.


        It is said that Ford is also negotiating new terms for the engine that Mahindra is expected to supply for EcoSport. One source said that this will be attributed to cost and profit analysis and "depends on discussions with Mahindra."


       Ford has invested more than 2 billion yuan in India to establish a global engineering technology center in the southern city of Chennai to help localize products and better adapt to changes in consumer trends. Ford has always focused on sourcing parts and components from India and increasing the common rate of parts and components in order to achieve economies of scale.

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        Before the economic slowdown in 2019 and the 2020 epidemic, Ford’s average sales in India decreased by approximately 90,000 vehicles per year. But the reverse export is almost twice its sales in the Indian market, which helps its profitability. Ford India has reported pre-tax profits in the past three years. The biggest obstacle it faces in India is the low utilization rate of its factories, with a five-year average of about 53%.


         The Indian market is almost dominated by small cars, and Maruti Suzuki and Hyundai have nearly two-thirds of the market share. Volkswagen, GM and FCA have failed to make a breakthrough here. GM announced that it will stop selling in India a few years ago. Skoda and Tata also failed in their alliance.


       Even if Ford considers bringing global products, including its selection of utility vehicles in China, to India, Ford still needs to consider several factors: market competition, new fuel efficiency regulations, and the ability to make money in a price-sensitive market. A person familiar with the matter said: "If Ford decides to increase its investment in India, it needs to know when it can recoup that investment."

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