Ford exits Indonesia to build Asia presence

Driven by the need to prune its operations and improve return on investment, Ford announced in late January that it would end operations in Indonesia (and Japan) by the year-end.

The decision mirrors that of its American counterpart, General Motors, which ended production of the Spin (its only locally built model) in Indonesia in mid-2015 and is now importing the car. Higher production costs in Australia have also resulted in the duo ending assembly operations and opting for imports instead. Ford and GM have lately followed the same strategy of scaling down unprofitable businesses, most notably in Asia, in an attempt to shore up overall profitability. This is not all that shocking since they have similar positions in the continent with China being the sole silver lining in the cloud. Both are also minor players in ASEAN.

Although the decision from Ford came as a surprise, it gives the automaker the opportunity to strengthen its position elsewhere in ASEAN where it at least has a chance to achieve respectable volumes, albeit over the long term, and stay profitable.

Assuredly, Ford found it most challenging in Indonesia with a paltry volume of less than 5,000 units – collapsing 58 per cent year-on-year – in 2015 to claim a negligible 0.5 per cent share of its light vehicle sales. Its biggest market in the region is Thailand with sales of 36,000 units last year, followed by Vietnam (28,000), the Philippines (25,000) and Malaysia (12,000).

We believe several reasons drove Ford away from Indonesia. For one, the lack of local assembly operations made it difficult. Without domestic production, Ford also never really envisaged bringing an Indonesia-centric model similar to what Toyota has done with the Avanza .

The introduction of the EcoSport in 2014 bolstered volumes but the launch of the Honda HR-V soon after killed this momentum. Meanwhile, buyers have moved away from the aged Ford Fiesta to better offerings such as the Toyota Yaris or Honda Jazz. The Ranger, Everest and the Focus also faced competition.

Ford’s pan-ASEAN strategy was also perhaps detrimental to Indonesia, where multipurpose vehicles are the most sought after modes of transport. However, MPVs are not as popular in other ASEAN markets, thereby reducing the appeal of a model launched for the region.

Hence, without key products in the right segments such as MPVs, it became tough for Ford to break the grip of Japan’s automakers in Indonesia which together account for 97 per cent of total light vehicle sales.

Indeed, Ford would have struggled to make it big in Indonesia. Our outlook prior to its exit announcement showed its market share to remain at one per cent of the light vehicle market, with sales surpassing 12,000 units by 2022.

With its foot out of Indonesia, Ford will now rely more heavily on Thailand for its success in ASEAN. It is likely that some investments that were to go to Indonesia could now be diverted to Thailand. Further, our forecast indicates Ford to be increasing volumes in Malaysia, the Philippines and Vietnam. Its market share in ASEAN though is set to remain at 3-4 per cent of all light vehicles sold in the region.

Beyond ASEAN, the move to exit Indonesia may also result in greater focus on bigger markets such as China and India. Ford is fairly successful in China as the seventh biggest passenger vehicle brand with sales of close to 900,000 cars in 2015, up eight per cent year-on-year, to achieve four per cent market share.

Ford is in the same position in India too, ranking seventh last year with sales of 78,000 units (+ one per cent y-o-y) and a market share of merely two per cent. It made good strides with the EcoSport when it was launched although it has lost a bit of traction because of increased competition. Now, Ford is looking to expand volumes with the recently launched Figo Aspire and the second generation Figo. An all-new MPV model is also on the anvil, possibly coming to market by circa 2019.

In the long-term, we predict Ford’s Asia sales to touch two million units by 2022. Its biggest markets in the region are likely to be China, India, Australia, Thailand and the Philippines.

Ford will continue to focus on the One Ford plan which envisages reducing the number of global platforms and increase commonality among parts. This is the only way Ford can hope to achieve economies of scale which also puts the Indonesia exit in perspective.

The writer is Manager, LMC Automotive

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