After General Motors and Harley Davidson’s exit from the Indian market, Ford has now made an official announcement to fully wrap up from the Indian market by 2022 on 9th Sept 2021.
It will continue to manufacture the vehicles for export purposes till 2022, but for domestic sales, it has stopped its manufacturing plants.
If we see to it, it has come to us as a shock because it will nearly impact 4000 factory workers’ jobs, and hard to figure out the exact effect on indirect jobs associated with this business house.
Let us try to understand how this event will affect the Indian automobile sector and why the reason Ford gave is justified?
According to Ford, the main reason behind this exit was that Ford had incurred about $2 billion in losses throughout ten years. Also, the increased import duties, less demand from the consumer’s side, and the covid 19 pandemic has forced Ford to take such a huge step to shut down its manufacturing units.
The one in Gujarat will continue to operate till quarter 4 of 2021, and the Chennai-based unit in Maraimalai Nagar will operate until quarter 2 of 2022. Nearly 4000 workers will lose their jobs, and around 600 workers will continue to the world in the Sanand factory.
Now the question here arises whether these reasons are even justified?
Ford continued to say that the reason for their exit was a poor demand for their cars in India and no long-term future demands. But due to improved living standards and increase in per capita income of middle-class people, this argument is hard to digest because the increase in income tends to make people shift a level up in terms of living standards.
Ford being an American company, has a low share in even the American market. It comes in the position of 3 or 4 in the market capturing. Also, over a while, economic factors like inflation, excessive duties on the pockets of intermediaries, heavy transaction duties, and increased rates of GST, etc., have affected the constant disposable income of the middle man. Unemployment adds to this.
Income plays a very important role in creating the demand for any product but sadly, over some time, the pockets of a middle man are shrinking to a certain extent where even they want to buy a car their pockets don’t allow them.
HEAVY IMPORT DUTIES
The second reason which Ford gave behind the exit was heavy import duties. If we try to think practically, it takes time for a foreign company to establish its manufacturing units in any developing country. The initial stage requires a lot of imported items and features of a product to be marketed and understand the buying nature of the targeted audience. Once a company is fully sure about its product and gets positive views, only a company can plan a long-term business plan in a developing country.
So increased import duties on certain automobile items could be justified, but the real problem with these foreign companies like Ford is their marketing strategies. They never sincerely try to understand the core and potential consumers. They generally focus on the upper horizon of society. That is why they do not have a strong dealership as Tata Motors and Maruti have.
Maruti holding a larger share in the automobile sector, focuses more on the middle man and designs and markets the features of cars accordingly from price to feature. They know Indian consumers’ buying behaviors and motives.
Over time, automobile companies like Maruti, TATA, etc., have created goodwill in the Indian market .they are known to design their cars according to middle-class preferences. They have created trust among its customer. They are well known and well aware of Indian general phycology. Many families in Indian can have been seen where they have preferred the cars of Maruti over different generations.
In recent past years, Ford had entered into many partnerships with Indian companies or small firms, but none was as successful as expected, especially with Mahindra. Whenever any partnership or amalgamation doesn’t go well with companies strategies or plans, it will always have dual effects .it not only affects the assets–liability equation and adversely affects the goodwill of the firm.
Future of Ford in India and impact global level
For now, Ford has announced to continue its manufacturing, but it has announced it will continue with its research and developments. Engineering work, software, and other sector operations at a global level to create sustainable profits.
On the other hand, if we talk about the frequent exits of foreign companies like general motors and Davidsons when such companies leave any country in such circumstances, it portrays a very negative image of that company at the international level.
Exits of such companies from the Indian market who were core elements and could contribute to India’s GDP leave an unpleasant image of India, especially its make in India campaign at a global level. There is a strong felt need for the government to recognize the potential key elements of the GDP that will help revive the economy and could help make this make in India campaign alive. Also, it’s high time to reform the automobile sector, especially after covid on been harsh on everyone, and stop the potential MNCs to exit, especially after General Motors, Davidson, and now Ford.