We all love our cars. Big in the Middle East. Tiny in Europe. Fancy looking in Asia. Environmentally friendly in the US. And what about India?
In India, 95 per cent of cars are priced below $20,000. An important factor that many international players failed to acknowledge when targeting to penetrate the market.
Simply put, the largest majority of Indians prefer to have a small, cheap, fuel-efficient cars that could bump over uneven roads without needing expensive repairs.
When mid-1990s US car maker Ford Motor Co entered the Indian market by building its first factory, a growth similar to the one of China was expected to happen.
That was short-lived. With a growing middle class having progressively more disposable income, economy observer were predicting a boom in the automotive industry that could have cut for Ford a 10 per cent market share in no time. That proved to be a severe misjudgement.
Fast forward to 2021 and Ford decided to pull the plug to the chances of success in the Indian market.
The cost of the failed investment?
It is estimated in $2 billion. This did not come as a surprise, as other US motor makers such as General Motors and Harley-Davidson had already deserted India not long ago.
So, the Indian auto market, once seen as the world’s third potential market after US and China, is now left with a handful of international players. Japanese Nissan still retains a foothold in the country as well as German maker Volkswagen. The latter, despite being the manufacturer with the world’s largest volume of sales, can only count a mere 1 per cent of their sales in India.
Car sales in India slowed down to a low 3.6 per cent compared to a high 12 per cent in the previous decade.
Ford’s troubled international ventures do not stop in India.
In January the car maker announced the exit from Brazil too. It is becoming apparent that the electric vehicles agenda is not a good fit for emerging markets, but still seen as a novelty for a small amount of early adopter.
“Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up” but such an expectation for that kind of environment and infrastructure is short lived, according Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for the auto industry.
“The struggle for many global brands has always been meeting India’s price point because they brought global products that were developed for mature markets at a high-cost structure’’, said analyst Ammar Master at LMC.
After losing $2.5 billion in India — since entry — and burning another $2 billion in the past decade alone, Ford made the hard decision not to invest more.
“To continue investing... we needed to show a path for a reasonable return on investment’’, Ford President & Managing Director, Ford India Anurag Mehrotra shared with reporters in a recent interview. “Unfortunately, we are not able to do that.”
India is growing steadily across many sectors, but the foreigners tend to badly misjudged India’s potential and fail to underestimated the complexities of operating in a vast country that rewards domestic procurement.
(The columnist is a member of the International Press Association)