Far from Ikon-ic: The inside story of Ford's messy exit from India

Far from Ikon-ic: The inside story of Ford's messy exit from India

Only three days before the announcement of its decision to shut manufacturing plants in India, Ford had been calling its large dealers to ask what models would be needed for the upcoming festive season.

Ford entered India in the mid-1990s with Mahindra as the partner, which saw the launch of models such as Escort and Ikon. Ford entered India in the mid-1990s with Mahindra as the partner, which saw the launch of models such as Escort and Ikon.

The chicken curry was incredibly delicious and Vijay Verma (name changed) devoured another large chunk. Lunch at home on a weekday was a rarity and today, his wife decided to pamper him. The meeting scheduled with his bankers at 3 PM was now pushed to the following day leaving Verma with a lot of time.

It was close to 1:30 PM when his phone buzzed to indicate it was an email from Ford. A quick look revealed something quite odd. It was a note to all dealers asking them to be a part of a Webex conference at 2 PM. "It was very odd since Ford never calls us at short notice," he narrates.

Verma called another dealer to check what was going on and the only news coming through indicated the top management was in a town hall meeting with its staff across the country. Next in line were the dealers. Intuitively, he knew something was amiss.

Sharp at 2 PM, close to 170 dealers looked at the poker-faced Vinay Raina, Ford India's Executive Director (Sales and Marketing). The initial hellos were barely superficial and he said the company had decided to shut down both the manufacturing plants - one in the outskirts of Chennai and the other in Gujarat's Sanand - with immediate effect. No more investments would be made in India since the company was losing a lot of money.

"We were curtly told the service business would continue but the showrooms would be history. It was like being in a funeral and all of us being buried en masse," says Verma. No question asked managed to get any concrete answer - be it the fate of the money invested in dealer showrooms in the recent past or why there was no period of transition before deciding to shut shop.  

The irony of the announcement was not missed by any of the dealer folks. "Only five months ago, the company had opened two new outlets (one in Delhi and the other in NCR) and four more that existing dealers had unveiled," says Vinkesh Gulati, President, Federation of Automobile Dealers Association of India (FADA). If that hit was not bad enough, only three days before the bad news, Ford had been calling its large dealers to ask what models would be needed for the upcoming festive season. "The whole issue was sloppily managed and dealers are convinced the management planned this exit months in advance," adds Verma.

Rubbing it in

The annual dealer conference at Ford is quite an elaborate affair. It outlines the plans for the upcoming year and the long-term part concerning capacity expansion and product launches. The schedule is predictable - start with lunch followed by presentations before it is time for cocktails and dinner. The one held in the February of 2019 was no different with Delhi being the venue. Not surprisingly, it was held in a plush five-star hotel.

On that day, the US automobile giant did not disappoint its dealers. One of them based in north India is today a bitter man. "The management promised us that seven new models would be launched with a large chunk being SUVs (sports utility vehicles). Obviously, we were thrilled," he says.

Also Read: Centre asks Tesla to begin production before tax concessions given

One of the slides at the presentation made a mention of branded retail or just how the showrooms now ought to look. Fancy pictures were shown to display the opulence and that meant the interiors had to be refurbished topped up with new name boards. "On an average, each of the outlets in large centres spent at least Rs 50 lakh. We were given a lot of hope and that convinced us to put in the money."

That October, Ford announced a Rs 1,925 crore joint venture (JV) with Mahindra. The statement was eloquent and said, "Mahindra and Ford will develop, market and distribute Ford brand vehicles in India and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world." That helped in convincing dealers like Verma and several more that the company was finally getting its act together in India.

Industry trackers, however, maintain there was always scepticism on how the JV would play out. After all, Ford entered India in the mid-1990s with Mahindra as the partner, which saw the launch of models such as Escort and Ikon. "That JV subsequently broke after Ford bought out Mahindra's holding. In a twist in the tale, Ford was looking to work with Mahindra again. "It just seemed a little strange to get back with the same partner after so many years," says one official.

By this time, Ford was not having it easy with the initial success of Figo, a model launched in September 2009. With Maruti and Hyundai storming ahead with a slew of product launches, Ford was left way behind. A frustrated Verma says the cut in excise duty for the sub-four metre vehicles announced in 2006 was the first piece of bad news for Ford. "The fact is Detroit (Ford's headquarters) was never serious about India and it always remained an outpost. In this business, consumers like to see many models and that never was the case with Ford," says Verma.

In terms of technology, the early phase of the Ikon, launched in late 1999, used the pushrod engine, one that was archaic even then. For August 2021, the company sold just 1,508 units, according to Team-BHP, when total sales for the industry was 2.6 lakh, giving it less than a 1% market share. In all, it has just five models in India, among which are Ecosport and Endeavour - by way of comparison, Maruti has 14 and Hyundai has 12.

In short, Ford India's strategy has not worked with the inability to strike any kind of brand equity with the consumers. On the specific query about why the company has done so badly, Ford India's spokesperson said, "The restructuring decision announced follows a detailed examination of our business and potential options in the wake of changing economic and regulatory environments and has been reinforced by 10 years of accumulated losses totaling about $2 billion, persistent industry overcapacity and slow sales."

Meanwhile, 2021 got off to a disastrous start with the proposed JV called off. Things were now back in limbo and fear loomed large in the minds of everyone associated with Ford India.   

Down a dangerous slope

A little over four months after the JV fiasco, Ford Credit India, the automotive finance arm, stopped funding dealers. Instead, it got Indian banks to take over the credit lines. That was preceded by the decision to stop retail funding as well. In reality, these were the symptoms of something larger in the offing but no one seems to have quite caught on to it. On this Ford India's spokesperson said, "We regularly assess market conditions, our business models and the best way to support customers, dealers and Ford in all the markets where we operate. The decision was the result of such an assessment."

What took place 2-3 months ago largely remains shrouded in secrecy but the ones who are in the know open up on the details. A full-fledged business plan for India was made by Ford India's Managing Director, Anurag Mehrotra to the bosses at Detroit. The fund requirement was $1 billion with a promised return of 3% over the next decade.

Also Read: Drone delivery of vaccines, drugs to be piloted in 16 green zones in Telangana

The hitch was that Ford looked at electric vehicles as a bigger story and thought it prudent to invest large sums there. The company spokesperson clarifies that Ford is not leaving India. "The restructuring sees us shift our focus to growing our Ford Business Solutions team and serving customers with must-have, iconic vehicles, including Mustang coupe. Customers in India will also benefit longer term from the company's plan to invest more than $30 billion globally to deliver all-new hybrid and fully electric vehicles, such as Mustang Mach-E."

"India was viewed as good money going after bad money and the cost of shutting down seemed cheaper than keeping it going. For the money, it generated, Ford had to deal with just too much," says a person familiar with the issue. Data sourced by Business Today from Prowess shows just how bad the picture for Ford India is - for FY19, it had revenues of Rs 28,102 crore and a net profit of Rs 211 crore, while in FY20, revenue dropped by a whopping 93% to Rs 2,023 crore with the company in the red by Rs 5,432 crore.

Ford in India, after all these years, is still driven by Detroit. It has had a spate of expatriates running the show here and both ex-officials and dealers rue their lack of understanding of the local market. "Being here was just a stopgap arrangement before the inevitable relocation elsewhere. Therefore, the approach was short-term and none of the executives demonstrated any flexibility," they say.

FADA's Gulati says the delivery schedule of Ford vehicles is severely disrupted and worries about to say to consumers. "Anyone who gets a car will straightaway face an erosion of value. Nobody would want to take a chance with a company that is scaling down operations so significantly," is his view.

While there is a word on maintaining the service agreements, issues related to the availability of spare parts will affect even the existing user base. "There is very little to suggest that things will be smooth." Indian consumers have had it hard in the past with the sudden exit of General Motors. Ford has now followed suit leaving many a question unanswered.

Also Read: Railways framing policy to lease, sell coaches to private parties to run theme-based tourist circuit trains