Ford set to reboot India innings with M&M as ally

Ford and Mahindra & Mahindra are preparing to jointly draft a new blueprint for India going by what Reuters reported earlier this week.

This will see the formation of a joint venture where M&M will hold the majority 51 per cent stake. If the script goes according to plan, the existing assets of Ford will be transferred to this new partnership. Issues on valuation, retail plans and so on will perhaps be articulated in the coming months as Ford attempts to reboot its India innings through this new business model.

Neither company has confirmed this development, though, on the face of it, it seems an extremely pragmatic option. It is no secret that Ford has little to show for its two decades in India even while there were some successful products along the way. In the case of M&M, having a strong global brand means access to greater competencies and also building scale beyond its present numbers.

An exit?

Can this be interpreted as a partial exit of Ford from India? Can this be compared to General Motors, which has pretty much shut shop for all practical reasons. Not quite, considering that Ford will still be around, though in tandem with an ally with whom it had first joined hands in the mid-1990s before the two decided to part ways some years later.

At that point in time, two decades earlier, this was the norm for almost all Indian companies that teamed up with big global players but eventually called it quits for a host of reasons. This included Tata Motors (with Mercedes-Benz), Premier Auto (Peugeot and Fiat) and Hindustan Motors (Mitsubishi and General Motors, but now back with Groupe PSA).

M&M and Ford teamed up to manufacture the Escort from the former’s Nashik facility. This was largely an assembly operation before the American auto-maker decided to set up its own greenfield plant near Chennai. By this time, M&M had decided to focus on SUVs as its core business and this was the beginning of Project Scorpio leading on to a remarkable growth story.

Ford had reasons to feel buoyant about India considering that the Escort had made a reasonable impact as a brand. The market was not as overcrowded then as it is now with just a handful of other players. One of them, Peugeot, had already exited, and Ford was getting ready on its next big project in the form of the Ikon mid-size sedan.

The market liked what it saw though it was also pretty clear by this time that competition was intensifying with more players entering the Indian automobile arena. Asian brands like Hyundai, Toyota and Honda had made their intent known, which meant that Ford had its work cut out.

The other significant difference, nearly two decades earlier, was that Detroit was still the monarch of the automotive world. Brands like Ford and GM may not have had any compelling reason to pull out all the stops for new regions like India where the returns were slow in coming.

After all, they were making good money from their traditional markets in the US and Europe. India, on the other hand, was still difficult by virtue of its price-sensitivity and the massive tilt towards compact cars. Given this backdrop, it was quite natural for these big American brands to take it easy with their India plans especially when the market was still in a stage of evolution.

However, companies like Hyundai were quick to figure out what it took to crack the India code. The stakes were also a lot higher and the Korean car-maker made sure that it never took its foot off the pedal since the time it launched the successful Santro compact car.

Hyundai, to its credit, has also grown strongly since then to emerge a formidable global brand. Along with its group company, Kia (which is getting ready to launch its debut SUV in India), the Korean duo has admirably balanced the needs of developed and emerging markets. The same cannot be said of brands from Europe, the US and even Japan (barring Suzuki), which have constantly found the Indian market a struggle in terms of costing.

It was during this time that Daewoo went bankrupt even while it valiantly strove to keep its operations here afloat. As other global auto-makers queued up to buy it, Ford emerged the highest bidder with $6.9 billion. Just when it looked as if it was set to take over the beleaguered Korean brand, it dropped out perhaps realising that the price was just not worth its while.

How would the script have turned out for India had Ford actually bought out Daewoo? Given that it turned out to be the best thing that happened to GM, which eventually acquired the company, there is every reason to believe that Ford could have just managed to scale up its India presence. All credit to GM, though, for optimising the competencies of Daewoo and growing its presence in Europe and other parts of the world.

Interestingly, Ford had explored the option of a powertrain alliance with Fiat for India clearly with an eye on pooling competencies in a market that was still growing. Nothing came out of this but, as in the case of the ‘what if’ premise with Daewoo, the Fiat tie-up may have also thrown up some intriguing dynamics.

It was also quite apparent by now that India was essentially a two-horse market comprising Maruti Suzuki and Hyundai even while other brands like City (from Honda) and Qualis/Innova (Toyota) were creating an impact in addition to those from Indian companies. Ford made news with product launches but was not perceived to be a serious threat.

Post 2008

It was in 2008, when the Lehman crisis happened and all hell broke loose, did the honeymoon in Detroit come to an abrupt end. Ford emerged relatively better from the bloodbath than GM and Chrysler but it was crystal clear that tough days lay ahead. By this time, it had decided to trim its global brand portfolio, which saw Jaguar Land Rover change ownership to Tata Motors.

Under the leadership of Alan Mulally, the company got ready with its ‘One Ford’ strategy, which meant a greater sense of platform synergies across markets. The idea was to keep investments in check while leveraging the competencies of various automotive manufacturing hubs worldwide and meeting the needs of individual markets.

During one of his visits, Mulally had reiterated to this writer that India would be a key part of this strategy. “India is important to us because the vehicles we make like the Figos, the Fiestas or small SUVs are the centre of the market worldwide. That is why you see us making such a focussed investment in balancing our portfolio to have an increasing number of smaller and medium-size vehicles,” said the President and CEO of Ford.

By the end of the day, smaller vehicles accounted for nearly 60 per cent of worldwide requirement and it was this large chunk that would be part of Ford’s global platforms. Here, 70-80 per cent of the components would be exactly the same across the chain.

“We will actually make vehicles in the same way across the world. A Fiesta in Chennai will be made exactly the same way as in China or the US, which gives us the scale with our suppliers and [helps us] bring more affordable products (than competition) to customers,” said Mulally.

One Ford strategy worked to plan but there were a new set of mobility challenges now emerging across the world. Mulally decided to retire in 2014 and his successor, Mark Fields, a Ford veteran, was around for just three years before Jim Hackett took over.

New challenges

As is true for other auto-makers, there are enormous challenges ahead in a world now dominated by priorities like autonomous driving, electric mobility, ownership disruptions thanks to options like Uber, etc. There are big investments to be made and Ford is therefore looking at alliances to leverage opportunities while keeping costs in check.

This explains the move to join hands with Volkswagen for new initiatives as well as with M&M in India. The company has also cut back on its Russia operations while China will continue to be an important market. It cannot ignore India for its obvious potential even though costing will remain a challenge in the years to come. What better than to team up with a known ally and work jointly to meet future challenges?

The details of the alliance will, hopefully, be made public soon. At one level, the move could be seen as a downsizing by Ford in terms of autonomy but this is far more practical than bidding adieu. This is what GM did two years ago when it decided to stop selling cars in India but still has one plant operational for export markets. How long that will continue is the million dollar question.

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