Why Is Ford Underperforming In India, And What Is It Doing About It?

When it comes to North America, Ford Motor Company is firing on all cylinders, having increased sales by 12.22 percent in the United States through October of 2013. Meanwhile, Ford has been steadily improving its European operations, with plans to break even in the region by 2015, and restructuring its Africa and Middle East operations to become more competitive. But The Blue Oval has been struggling in India, an area that presents a notable opportunity for the automaker.

The Current State Of Affairs

Over the last two years, Ford has lost market share in the world’s most second-populous nation. From 2011 to 2012, its sales in India dropped by 15 percent. What’s more, the geographic business unit lost 1.4 billion rupees ($23 million) in 2011, and 1.075 billion rupees ($17.5 million) in 2012 (based on current exchange rates). The only good news about those numbers is that the losses have decreased by 23 percent within that period.

And while Ford continues to be the best-selling vehicle brand in the United States, the automaker’s market share in India hovers around the 3 percent mark. Considering that Ford has been operating in the country for 17 years, that’s an extremely low and gravely disappointing number. By comparison, South Korean rival Hyundai — which has been doing business in India for 15 years — holds a commanding 20 percent share and is profitable in the country.

The Obstacles

Unfortunately for Ford, its misfortunes in the Indian market aren’t entirely the results of its own wrongdoing. High inflation and rising interest rates are holding back many consumers from purchasing new vehicles in general, not only Fords, by reducing their disposable income. And as of August 2013, the country’s inflation rate stood at 6.1 percent — the highest it has been in the last six months. To curb its rise, India’s central bank has made the common sense move by increasing interest rates, in turn making it more costly for a consumer to take on a loan. Catch 22 scenario, indeed.

Hyundai’s Success

While Hyundai, before Ford adopted its One Ford plan, spent the last decade focused on bringing affordable and desirable subcompact, compact, and midsize car offerings to markets around the world, Ford was more concerned with larger sedans, SUVs, and pickup trucks — neither of which are desirable in India.  Given India’s poor infrastructure and high population that leads to crowding, compact cars are the dominant type of vehicle sold in the country — with over 70 percent of cars sold being compact in size.

In that regard, Hyundai currently offers a significantly more diversified product portfolio than Ford, with nine different models across several segments. By contrast, Ford offers five vehicles in India, including:

  • Fiesta — new global B-platform subcompact hatchback
  • Classic — first-generation Fiesta for developing markets
  • Figo — updated Mark V Fiesta subcompact for developing markets
  • Endeavour — the SUV variant of the 2nd-generation Ranger pickup truck
  • EcoSport — new global B-platform subcompact crossover

What Is Ford Doing About It?

Ford plans to continue its expanding its lineup in India, reportedly planning to introduce the next-generation 2015 Mustang in 2014. The sports car is expected to be followed by four other models, two of which are hatchbacks (perhaps the Focus hatch and Escape/Kuga CUV). As expected, the Mustang won’t be a sales leader, instead serving as a halo vehicle to build excitement around the brand. We expect the Focus and Kuga/Escape, to help Ford significantly grow sales in India while also generating increases in revenue, especially when considering that demand for hatchbacks in India is expected to double in the next five years. Given that buyers find the new models attractive (and we see no reason why they wouldn’t, as the rest of the world has embraced them), the new units could help Ford gain market share over its competitors.

In fact, that’s exactly what the recently-launched EcoSport subcompact crossover, which is based on Ford’s global B-segment platform shared with the Fiesta and B-MAX, has done for Ford. In the few months that the EcoSport has been on sale, it has become one of the best-selling SUVs in India. The EcoSport, in particular, has helped Ford reach its highest monthly sales volume in September, reaching 10,640 units. Ford’s sales volume, unfortunately, pales in comparison to that of Hyundai and its 30,600 units sold in September 2013.

The good news is that when demand for its vehicles in India does begin to increase, Ford will be able to meet it, as the automaker has invested $2 billion in production plants in the country. Currently, Ford is exporting more Indian-built cars than it is selling in the country. When local sales pick up, Ford has positioned itself where it can reap the benefits of low-cost local production as well as healthy profit margins.

The Opportunity

Given Ford’s low sales volume and minuscule market share in the country, India presents a growth opportunity for Ford today and well into the future. Expanding the product lineup to include core global products such as the Focus, Kuga/Escape, Fusion, and Edge, seems like a good way to appeal to a wider audience and increase sales volume.

And given the continuous emergence of India’s middle class, which is still in its infancy, Ford should do its best to grow its sales and presence in the country as soon as possible. Otherwise, The Blue Oval risks being late to the party, as it was to China.

Motrolix Founder with a passion for global automotive business strategy.

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