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MSMEs, suppliers with dedicated units may bear the brunt of Ford’s exit

G Balachandar Chennai | Updated on September 13, 2021

A file picture of Ford’s Chennai plant   -  REUTERS

Auto parts industry awaits clarity from company on the way forward

Ford’s decision to stop local production has come as a big shock to the domestic auto parts industry. The move is expected to hit suppliers hard, especially those who have made dedicated investments for the US car maker’s needs.

After 25 years, last week Ford India announced that it had decided to pull the plug on manufacturing in India. The blue oval brand has been struggling for a while and trying to look for partners to keep the operations going. But nothing materialised.

The company claimed that it was left with no option but to exit manufacturing operations due to lack of domestic growth and reduction in export volumes, prompted by new regulations.

“Of course, the company was struggling for growth in India due to product and other reasons. But shutting down its vehicle manufacturing operations is definitely a big setback for the industry,” said L Ganesh, Chairman of Rane Group, a leading auto parts house that has been supplying safety parts such as airbags, seatbelts, among others, to Ford.

MSME units and suppliers that have set up shops exclusively for Ford will bear the brunt and are clueless about the way forward.

The Tier-2 suppliers, especially those surviving in the vicinity of the Ford plant, largely on the back of the automaker’s Tier-1 suppliers, will bear a bigger brunt, in addition to their already bad financial state on account of Covid-19, says Ashim Sharma, Partner & Group Head Business Performance Improvement Consulting at Nomura Research Institute.

In FY20, Ford India produced close to 2 lakh vehicles, a major portion of which were meant for exports. The production dropped to 89,000 units in FY21. It has built a capacity to make 4.4 lakh units across two factories — Chennai (Tamil Nadu) and Sanand (Gujarat).

There could be some respite by way of Ford’s intent to continue its engine production at Gujarat factory, which has a production capacity of 2.7 lakh units, but not many will benefit. “Large suppliers who had setup dedicated plants for Ford may hopefully get to supply to Ford’s global plants especially in case of non-bulky parts. Since, Ford had not launched many new models in the recent past so some of the dedicated investments e.g. in tooling would have paid off (if made for popular models like Ecosport) the others with an existing lower ROI will certainly be hit on the back of this exit,” says Sharma.

Awaiting clarity

Auto parts industry representatives say they are waiting for some clarity from Ford to discuss the way forward as a number of auto ancillary players are supplying to Ford’s factories both in India and abroad.

“We are waiting for some clarity and communication from Ford as we have set up exclusive units to serve Ford’s vehicle production requirements in India,” says a top official of a leading auto component group in Chennai.

Published on September 13, 2021

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