October 03, 2021

Why Big companies like Ford Motors are leaving India?

 On 9 September Ford declared that the company is reconstructing and following this the production of every Ford vehicle which is consumed in India will be shut down with immediate effect and the production of vehicles that are exported from India would continue till 2022 only.

Ford is Exiting | Ford leaving India

Ford India said that “we have tried each and every way whether it be finding a partner or reseller or doing a collaboration”. But nothing worked so they had to exit. They said that now it is unfeasible to do business here. In the past 10 years, they have faced a loss of 2 billion dollars, and also due to the pandemic and the hit which they faced in the demand, Ford is completely unable to recover from it and that's why they have to shut down the operation of manufacturing from India.

Country of Origin

Ford Motor Company is an American Multinational Auto manufacturer established in Detroit, Michigan, United States. It was established by Henry Ford in 1903.

Is it only Ford who is exiting India?

Now people who own Ford vehicles should not worry because ford has made arrangements for them also. They will be provided with servicing and all. But the exit of ford is not only the exit. This trend is trending for the past few years. In August 2021 SsangYong announced that the partnership they had with Mahindra and Mahindra worked with only one car and they too are existing or pulling off. Before this, in December 2020 General Motors also made such a statement that after operating for the past 13 years due to low sales and increment in losses they are shutting down. 

And also before it, in September 2020 Harley Davidson made a switch statement and in February 2019 Fiat also said that just seven years after entering the market their planning to go out so if ford is not alone in exiting then this is a concerning situation for India.

So it is very important to know why it is happening?

Now if we discuss domestic cars. Cars which we use if we observe their market shares then Hyundai, Maruti Suzuki, Mahindra and Mahindra, and Tata these four manufacturers have controlled the whole lion's shares of the Indian market and this is the main reason which foreign companies don't get space in the market and the overall growth rate of the market is around 2 to 3 percent CAGR (Compounded Annual Growth Rate). If you look at the past few years market is growing at this growth rate only. It means the market is not proliferating but the market is already consolidated and controlled by 3 to 4 players only have controlled the whole market.

Requirement of Market

Unique market demand is needed if we look at Ford, General Motors, etc are foreign companies. And the type of cars requiring the countries of their origin is totally different from those required here in India. Neither the segment nor size of the car is in the foreign countries have demand here. Nor do people have money and access to roads that are needed for those cars. 

So as a result the type of car required here is of low price segment, cars which require a low cost of ownership. Those cars are not available to these foreign companies, these cars are available at Hyundai, Maruti Suzuki, and Tata. That is the reason why their cars are selling a lot and the cars of foreign companies have no buyers. 

Even if foreign companies try to sell cars of this segment by doing some cut corners or lowering the prices so their Global reputation and global brand value have to preserve if, by cutting corners try to manufacture a car that may be less safe or a car of a segment which is available nowhere so they're in the fear of decrement in their brand value and image in the global market. 

And this fear keeps them away from introducing such types of cars and this is a big reason why they are not able to meet the requirements of the people here and the cars which they are offering have no demand and that's why they are not able to grow their market.

High Taxes on Cars

The next thing is high taxes as already discussed above sale is not increasing even though CAGR growth is not increasing and taxes here are 40 to 50 percent and this is not only for petrol-based or diesel-based vehicles because many people think that taxation is only for petrol-based or diesel-based vehicles and it won't be for electric vehicles. 

Elon Musk once said that "first reduce the taxes then only we will be able to launch our cars". Officials from Audi said that the sale in India is only 1% of the whole Global sales. But its revenue is 10% because the majority portion is spent on taxes. 50% to 60% of the car value goes into taxes. And due to these huge taxes, the price of a car in the Indian market is 1.5 to 2 times the price in the market US or Europe. 

So neither the company can explain the cost nor Indian people can afford the car. This is a big reason why foreign companies even try to sell the car in India by importing from other countries too to seems nearly impossible.

Shared Automotive Services

The next reason is maybe people don't want to buy cars. This is a very interesting concept which is called shared mobility. The brand which offers cars for rent comes under this category. The brands which offer taxicab services come under the category of Ola, Uber, etc. The brands which you wish to work on the subscription model come under this category refers that the demand for this concept will increase in the future. 

First, off you buy a car and drive it only 2 days a month it is better to use the concept of shared mobility take a car on a subscription for the period it is required, and then return. Nowadays working on subscription models has increased. For example, Adobe Premiere Pro where people edit videos is also a subscription that people buy, and Youtube premium where people watch videos. These subscription-based products have also entered the market of cars, by which the requirement of 10 people will be satisfied with one car.

So the overall sales of cars will decrease, as earlier 10 cars were sold and now only one. So a dent is made in the sales that maybe people don't want to buy a car. So this trend is emerging in the market. This is very important to look at why the automobile sector is declining.

The Electric Vehicle Revolution

The subsequent case is associated with electric vehicles. India 2017 respected Union Minister Shri. Nitin Gadkari said that 250 million vehicles that exist currently running within India, especially cars will be transformed into electric cars by the end of the year 2030 this dream that gets fulfilled is not mandatory. This seems to be a very huge target. This may get delayed by 10 to 15 years also, but hopefully, this would happen. 

Nowadays people are shifting to electric vehicles as people get subsidies, taxes are reduced and rebates are given to various state governments or promoting this and within 10 to 15 years a market worth 200 billion related to electric vehicles will stand in India. And if you look at the foreign company's cars, India is also slightly turning towards electric vehicles. 

But at present, all the cars run either petrol-based or diesel-based. Any car which is priced below 10 lacs and comes under the segment of electric vehicle has no existence. None of the electric cars available at present is value for money and we don't have a charging infrastructure. But the companies will soon shift from petrol and diesel and move out towards EV. 

Future of EV

The companies which will soon launch electric vehicles understand the demand of the market in will make appropriate changes those companies in the coming years will succeed. So the companies which are working on past strategies will face challenges while running their business. So these were some of the thoughts on why foreign companies like Ford are exiting. In the coming 10 to 15 years, what changes in the automobile sector in India will be facing also which exciting development can happen.

Conclusion

Other automobile companies such as Tata, Hyundai, and Maruti Suzuki have captured the Indian automobile market because they know what Indian Consumers want. It is just like the example of Amazon Prime and Netflix where Netflix hasn't really understood what the Indian audience wants while Prime is releasing really good shows such as Mirzapur and Family Man which satisfy the Indian audience's taste.

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