Ford has not been able to find another partner to sustain its India operations since its big alliance with Mahindra failed. There are now some tough decisions to be made by the American automaker that could reshape its strategy and ensure growth.
Ford India continues business as usual with the launch of the automatic Figo in July and the imminent launch of the facelifted EcoSport, as depicted in numerous spy photos. The reality, however, is quite different. A new product drought is forecast for the American brand’s next 2-3 years in India, with no new models planned. It is the biggest crisis in the brand’s 25-year history. Dropping export volumes and disruptions related to COVID-19 have aggravated the company’s woes. It is now struggling to sustain its Indian operations with an outdated product portfolio.
Ford’s Sanand and Maraimalai Nagar plants are geared to produce 4,00,000 cars each year, but production has fallen to just 80,000 units a year (half of this is exported). It is unsustainable to operate a plant at such low capacity, which is why Ford India has desperately sought another manufacturer with whom to share the capacity, whether by contract manufacturing, joint venture (JV), or even the sale of one of its plants. Mahindra & Mahindra (M&M) dealt the biggest blow to Ford India, aside from the pandemic, when an agreement that could have been strong was abruptly terminated, effectively leaving the company in the lurch.
In October 2019, the two companies formally shook hands to start working on a JV that envisages a comprehensive partnership. They began exploring synergies in 2017. Ford and Mahindra were to share manufacturing facilities and EV technologies as well as develop multiple platforms and engines for a whole new range of Mahindra products. The alliance looked brilliant on paper, adding scale and products that would otherwise be unfeasible for both companies to develop individually. Where did things go wrong? In addition to keeping their separation details under wraps, M&M’s new leadership also seems to have changed their attitude. It has come to our attention that concerns about indemnities and emission compliance raised by the new management are red flags, but Ford sources (and Mahindra insiders who were intimately involved with the deal) say that there are no serious issues.
The American auto maker made the mistake of pursuing the joint venture route too far, riding on what was, in reality, just a handshake. The two partners passed certain milestones during our discussions based on trust and an understanding that this alliance was something they wanted. A Ford insider who was close to the deal said, “We saw the chemistry and quality of interaction between Jim Farley and Dr Pawan Goenka, which gave us no reason to doubt them.” The new leadership had a different understanding of collaboration, he explained. Retired on April 1, 2021, Goenka did not participate in the project any longer.
Ford’s problem was it didn’t have a Plan B, so its short and mid-term product plans were ruined when the alliance broke up on December 31, 2020. The discussions had already advanced to an advanced stage with regard to the joint development of seven new models, including three SUVs – Compact SUV (B744) and 4.3m-long Creta fighter (B772) on Ford’s platform, and a larger SUV (CX757) on Mahindra’s W601 platform that underpins the XUV700. According to the agreement, each brand was to design and build its own ‘top hat’, and Ford had already contracted Pininfarina to design and build the C-SUV for a possible release in mid-2022. Later in 2022 and 2023, Ford will introduce its SUVs based on the Ford platform, but Mahindra will provide its engines. The facelifted Ford EcoSport, due to debut in April 2021, has been delayed until the mStallion 1.2 turbo-petrol engine is used. Before the joint venture was announced, Ford had already finished testing M&M’s 1.2 turbo-petrol engine.
Ford between two cliffs:
In retrospect, Ford India lost three valuable years with this alliance when, if it had been able to develop its own products, it could have taken advantage of the time and resources it spent with the company. The carmaker can no longer spend money in the Indian auto market, even if they want to do so. We will have to wait at least 3 years before we see a complete range of models wearing the Blue Oval. It’s the fact that Ford does not have enough product till then that’s the bigger worry. CAFE, BS6 Stage II, and other regulations require that some models, especially the 1.5 litre diesel, be upgraded. Investing in this will be necessary. The next-gen Endeavour (U704) has also been delayed. The Endeavour would have been introduced after the C-SUV, which makes sense since Ford had intended to bring it in later.
Ford’s best option is to join forces with another manufacturer, as a collaboration or joint venture, the very premise of tangoing with Mahindra, remains the only realistic option. Tata Motors, MG and Skoda may be the only companies that could assist Ford in its alliance drive. Ford is believed to have approached many automakers about a partnership. It makes sense for Ford and VW to extend their global alliance to include markets such as India because these companies have just formed a wide-ranging partnership for electric cars, trucks, vans, and autonomous technology. According to reports, Ford approached Skoda India (which represents VW in India) to explore a partnership but was turned off by its uncompetitive cost structure. Ford’s source explained that Mahindra taught them how to keep an eye on development costs. In addition to stretching every development rupee, could Tata Motors be a worthy partner? Likewise, Tata abruptly ended its partnership with VW. There is one thing Ford can offer Tata Motors – a midsize SUV to fill the void between Nexon and Harrier. The Ford B772 might be just what Ford needs. A month in which Tata Motors sold 30,000 vehicles suggests Tata Motors may need additional capacity in the near future, and Ford’s plant at Sanand is the place Ford could turn to. The company’s short-term capacity needs may also be met by this solution. According to reports, Tata Motors did not show interest in the deal.
There are also reports of Ford negotiating with Ola to use its Chennai plant for operations, but Ola doesn’t need much capacity at this point because a new massive plant is coming near Bengaluru.
A partner isn’t easy to come by, and if Ford fails to find one, its manufacturing operations in India may be shut down. Ford’s Sanand plant will be closed, as it is too expensive to produce profitable cars at this plant built according to Ford’s global standards. The hope was that Ford would at least continue to make EcoSports and Endeavours at Maraimalai Nagar, which are both financially successful for the company. Here again, we come to the core issue – these plants cannot be sustained for a further three years with the current model line-up.
Ford, a multinational that rushed into India in 1994, should give one more shot at a market that has been difficult. Mahindra was the last company to challenge Dearborn, Michigan, and as a result, patience with India seems to be evaporating. It would be a mistake for Ford to invest in India if they wanted to maximize their returns. A Ford source said the company would rather pour 500 million USD into a new pickup truck or a market that yields better returns. Apart from that, there are frequent policy changes that make doing business challenging and frustrating. Regulations such as ISI markings on windscreens and BIS marks on alloys are a real nuisance, according to Friedman.
Ford, unlike GM, which closed its Chevrolet plant when it left India, will stay in India even if both plants are closed, even in a worst-case scenario. It will reduce its footprint in the market with a handle of imports since Ford has followed Australia and more recently the Brazilian models (where it stopped local manufacturing). Mustang, Ranger pick-up trucks (for which there is an existing launch plan) and future EVs may be sold in small numbers in India.