- Ford Motor Company is firing on all cylinders in India.
- Expect new launches and rise in sales from India.
- The Company is aiming to tap the long-term growth opportunity offered by the country.
Management of Ford Motor Company (NYSE:F)) has been very vocal about its international expansion plans over the past few years. The company has been trying to expand its presence in China as its top brass believes that operations in Asian markets will drive the automaker’s overall growth going forward. But in addition to China, the auto giant is also bullish on another particular Asian market – India. Let’s examine Ford’s prospects in the country.
Let me start by saying that Ford India is still in the process of taking off. The automaker operates with just a 4.32% market share in the country and managed to sell about 81,570 vehicles over the last year. This sales figure is dwarfed by Ford’s U.S numbers where the automaker managed to sell 2.6 million vehicles over the last year. But prospects of Ford India can’t be negated based on the stark difference in geographical sales.
It is worth noting that India is the fastest growing mature automobile market across the globe. To put things in perspective, sales of passenger vehicles in the country stood at 2.6 million units last year, which the Society of Indian Automobile Manufacturers estimates could swell to 3 million by this year’s end. That’s a healthy growth rate considering the size and proportions of the country’s automobile market.
This industry growth could further accelerate on the back of the following recent developments in India:
- Central government employees just got a 14% pay hike, this translates into higher per capita disposable income in the country,
- The country saw a better than average monsoon this season, meaning incomes of farming-related professionals will be on the higher side this year,
- India’s newly introduced scrappage policy promotes the sale of new cars and discarding of 10+ year old vehicles.
The above-mentioned factors should further propel India’s automobile growth in my opinion. The scrappage policy alone is expected to quadruple the auto industry’s turnover over the next five years. But the point I’m mainly trying to make here is that the Indian automobile market is projected to grow at a blistering pace going forward. Ford India, even if it isn’t the leading automaker in the country, stands to benefit as macroeconomic tailwinds would support its efforts and investments to expand in the country.
Making the right moves
In addition to benefiting from the macroeconomic tailwinds, Ford India has also been making efforts to gain market share and to boost its growth. For starters, the automaker is trying to make India its export hub for Asia, taking advantage of the country’s low-cost structure, relatively cheaper cost of labor and its shorter trade routes to other Asian markets. Ford India commenced operations at its $1billion manufacturing plant in India last year to facilitate the domestic and foreign demand for automobiles, and I believe that production earmarked for exports, should allow the plant to achieve economies of scale very quickly.
Ford is also looking to set up a $720 million R&D center in the country. The automaker can later use this facility, and the workforce employed there, to develop vehicles for developed markets over the next decade. A senior analyst at IHS Automotive noted that product development costs are almost half in India, compared to some other developed markets such as the US or UK. So the prospects of setting up a global R&D hub in India, to lower its overall operating costs, appears to be very appealing financially speaking.
More to the point, Ford India has managed to increase its market share in the country from 2.6% last year, to 4.32% in the past May, with the launch of strategically targeted vehicles such as the Ecosport and Figo Aspire and refreshed Endeavour. Market share gains may not look like much at first glance but it does indicate that Ford India is making progress and managing to nibble away market from established automakers in the country.
The auto giant also aims to recreate the success of Ecosport going forward; it aims to launch a new sedan in India this year that is supposed to compete in the country’s C2 segment. The company currently doesn’t have any vehicle that would compete with successful C2 segment offerings such as Maruti Suzuki Ciaz, Hyundai Verna and Honda City. If the automaker plays its cards right, the upcoming model might end up opening an untapped market segment for the automaker’s Indian subsidiary.
Ford does offer its Fiesta in India, but its classified as the less-premium C1 segment offering. It competes with other down-market offerings in its class such as Maruti Suzuki Dzire, Hyundai Xcent and Honda Amaze. The fiesta currently does not have the power, positioning, pricing or aesthetics to give the aforementioned C2 offerings a run for their money so a new model from Ford is very much needed.
Ford India may not have a sizable sales volume currently, compared to its operations in other developed markets, but the automaker is positioning itself for the long term projected growth in the country. I’m of the opinion that the auto giant is making all the right moves to catapult its growth in India going forward. Consider this as a long-term investment, where blockbuster returns could start showing up in 5 to 10 years.