Ford to end car production in India and take $2bn hit

The Detroit car maker's move will affect about 4,000 employees in Asia's third-largest economy

US car maker Ford Motor will shut its car factories in India and record roughly $2 billion in restructuring charges, scaling back significantly in a country that past management saw becoming one of its three biggest markets.

Manufacturing of vehicles for sale in India will stop immediately and about 4,000 employees will be affected, the company said in a statement on Thursday.

Ford will wind down an assembly plant in the western state of Gujarat by the fourth quarter, as well as vehicle and engine manufacturing plants in the southern city of Chennai by the second quarter of next year.

Quote
We are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas
Ford chief executive Jim Farley

Ford’s move comes months after it dropped a plan to cede most of its Indian operations to local Sport Utility Vehicle maker Mahindra & Mahindra. Ford India has racked up more than $2bn in losses over the past decade and wrote down the value of its business by about $800 million in 2019.

Chief executive Jim Farley has signalled he will no longer pour capital into marginal markets that provide little or no return. In January, Ford said it would cease more than a century of manufacturing in Brazil and took a $4.1bn charge. Mr Farley instead is pushing deeper into China, the world’s largest auto market, where Ford’s Lincoln luxury line now sells more models than it does in the US.

“We are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas,” Mr Farley said in a statement. “Despite investing significantly in India, Ford has accumulated more than $2bn of operating losses over the past 10 years and demand for new vehicles has been much weaker than forecast.”

In a filing, Ford said it will spread the restructuring charge over several years, booking $600m this year, $1.2bn in 2022 and the rest in subsequent years. The car maker reiterated it sees global restructuring charges this year of between $2.2bn and $2.7bn before interest and taxes.

Ford shares were down 2 per cent at 9.44am in New York. The stock has surged 48 per cent this year through to the close on Wednesday.

Foreign car makers have found it difficult to gain a foothold in the value-conscious Indian market, which is dominated by Maruti Suzuki India’s cheap cars. The government’s high tax regime, which imposes levies as high as 28 per cent on gasoline vehicles, has also been a major roadblock. Toyota Motor last year said it would not expand further in India due to high tariffs, while Harley-Davidson has exited the market. General Motors pulled out in 2017.

Ford India had a market share of just 1.4 per cent in August, compared with 1.9 per cent a year earlier, data from Federation of Automobile Dealers Associations showed. The local units of Japan’s Suzuki Motor and South Korea’s Hyundai Motor together control more than 60 per cent of the market.

The retreat by Ford is a further blow to Prime Minister Narendra Modi’s Make-in-India programme, which encourages companies to manufacture locally. Tesla has called on Mr Modi’s administration to allow it to import cars more cheaply before it commits to setting up a factory in the country.

Ford was one of the first global car companies to enter India when the economy opened up in the early 1990s. The company first set up shop in 1926 but shut down its initial operation in the 1950s.

Following the factory closures, Ford will import and sell some vehicles, including Mustang coupes, but the sale of models including the Figo, EcoSport and Endeavour will cease once existing inventory at dealers is sold.

The move calls into the question the future of the EcoSport small SUV in the US, which the company had been importing from India. Ford introduced the model in the US in 2018, but it has had little success. Sales are down 22 per cent in the US this year.

Ford considered several options in India, including partnerships, platform sharing and contract manufacturing with other car makers before deciding to shut down factories in India. It is still considering the possibility of selling its manufacturing plants in the country.

Updated: September 10th 2021, 5:30 AM
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