Foreign Automobile Companies are a key asset to India’s growth and economy. To scale smooth business in the Indian market these companies have to provide feature-packed vehicles. In recent times, three internationally-renowned companies have left the manufacturing business in India. Ford India is now the latest automobile brand to leave its manufacturing after General Motors and Harley Davidson. Currently, Ford has two manufacturing plants in India. After serving for 25 years in the Indian automobile market it seems like now it is following the footsteps of closing down the manufacturing plants in India in ways like other GM & Harley-Davidson.
General Motors was the first amongst the three U.S. companies that left India in the year 2017. Two-wheeler automaker Harley Davidson exited India in June 2020. The third American automobile brand Ford India has also wrapped up its business in the country.
General Motors started its journey in India during the 1990s. GM initially came up with the Opel brand and sold cars like Corsa and Astra. The underlying deals of vehicles were quite respectable yet when individuals began to confront support issues with their vehicles and fresher vehicles in the market came out the market, the deals of Opel fell definitely and this drove GM to pull out Opel from the Indian market. In the early 2000s, cars like the Optra sedan, Tavera MPV and Spark hatchback and the newer ones including Captiva, Beat, Cruz, Aveo, Enjoy and the Sail Siblings were performing quite well. The TrailBlazer came and left as it was overlooked by people.
In May 2017, GM decided to shut down its domestic operations in India with a market share of less than 1% in comparison with more than 5% market share in 2010. Let’s dig deep into the reasons for their closure.
1. Dealership Network
There is a saying in the Auto Industry that “A good product needs to be sold through a good network.” GM had 400+ dealerships in India but when their sales started a downward flow, people started facing issues and were unhappy with the experience. On the other hand, dealerships were unhappy with the product line-up offered by the company. On the other hand, the dealers didn’t show confidence in GM’s new products. That’s the main reason why the dealership count went from 400 to 200 as most of the dealers were moving out to different car brands.
2. Car Models
In India, most of the GM cars were relaunched as Daewoo cars. Certain cars that outrank in terms of performance including Beat, Cruze and Tavera. Talking about the Beat, it looked good when it launched but GM continued to sell it for many years without providing any major update. The Cruze managed to create hype in the market due to a huge amount of fan following. The Tavera was additionally a well-known vehicle yet GM messed up on the front of the discharge (like the VW outrage) and this influenced 1.2 lakh vehicles. When comparing the Cruze amongst the competition from quality and performance aspect with cars like Volkswagen Jetta, Skoda Octavia and Hyundai Elantra had taken over the market and GM was on the sidelines.
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Harley Davidson is the top American cruiser bike brand in the world that was founded way back in 1903 in Milwaukee, Wisconsin in the U.S. It was last year in August 2020, Harley Davidson completed 10 years in India and here they sold somewhere around 27,000 units while Royal Enfield sold double of that every month. The above figure clearly states that the company wasn’t showing any profitable results and there were no signs of a turnaround in near future. Harley found it very difficult to survive in the Indian market. At this point, the firm called off its business operations in India.
1. No Full-Scale Manufacturing
In 2011, India hosted the first Harley-Davidson plant outside the US. It was set up in Bawal located in Haryana aiming to make the bikes affordable for the value-conscious Indian customer. Now the real problem started when bikes received a tax burden of 56%(28% GST + 25% Customs duty and Cess 3%). The primary reason was the parts were not manufactured but merely assembled in India. So, it was obvious that the above tax rates simply don’t comply with Harley’s aim to make affordable bikes in India.
2. Royal Enfield Dominance
In early 2019, Royal Enfield launched two bikes with their biggest engines ever. The bikes were Interceptor and Continental GT and they came with 650cc engines. The prices of these bikes are Rs 2.5 lakh. On the other hand, Harley-Davidson’s entry-level bike named Street 750 was priced around Rs 4.7 lakh. All through the long haul, Royal Enfield has effectively made a moderate and solid option in contrast to Harley-Davidson.
Ford, was recognised in India through its tagline “Josh Machine”, the Ford Ikon. Several clients praised the Ikon for power and sturdiness. The success of Ikon began in 1998 when ford made a comeback with Ford Escort in India from 1953 server import restrictions. This time Ford was perceived as the symbol of Mahindra Ford India Ltd, a 50:50 joint endeavour with Mahindra and Mahindra. The Escort was known for its dependency and toughness and some of the owners were known to use it for a longer period.
Last month reports stated that Ford India is shutting down its plants in the country despite the Ford-Mahindra joint venture. Many reasons led Ford to leave its business operations in India. So, let’s focus on some of the key reasons.
1. Delay in Partnership with Locals
India is a cost-effective and price-sensitive market. Like GM and Harley, Ford India was also unable to cope up with the market. It entered the Indian market around 25-30 years ago but only had a 2% share of the passenger vehicles market.
2. Lack of New Car Launches
After the pandemic, the auto industry suffered from huge losses and so did Mahindra. They primarily focus on their product and manufacturing of upcoming vehicles. In this process, no new models of cars were launched from Ford India. The prices of Ford Ecosport and Ford Endeavour were on the higher end as compared to other cars available in the market at a similar price point.
Last year Ford India planned to launch the Figo automatic but eventually, the car got delayed and the company launched on 22nd July 2021. It was the second-gen Figo with no significant features advantages over competitors.
3. Cut Throat Competition & Accumulated Losses
When the second-gen Figo was launched it was priced way higher than its competitors like Suzuki Baleno and Volkswagen Polo. By August-September Ford India’s plants were underutilized at this time.
Ford India has been losing money for a long time. Business Today reported that the company’s revenue was 28,000 crores in FY2019 with a net profit of 211 crores. The series of losses started in FY2020 where the revenue of the company massively dropped to 2,000 crores and the loss accumulated was around 5,400 crores. In the end, it was estimated that the company accumulated losses close to $2 billion in the Indian Market.
At one particular time, Ford India exported over 90,000 Ecosport cars per year (double than domestic sales). This could be the market opportunity for them to expand their business across India. Ford India looked forward to a Free Trade Agreement that would open up the European market to cars made in India which was the primary reason behind the commencement of a large-scale plant in Gujarat. The FTA never went through and Ford’s plans were permanently disrupted.
The major failure of GM, Harley and Ford India was dealership networks. GM hardly had dealers in India when they decided to exit India. Harley was unable to find local partners for the dealership opportunities. Ford had a good hold on the dealership but due to the end of the joint venture from Mahindra & Mahindra, this hold became loose at the beginning of 2021.
Another common factor amongst these US carmakers is facing huge competition in the market. To survive in India, automobile companies have to keep two things in mind – the pricing and the performance of the vehicle. Ford India, GM as well as Harley performed very well in terms of performance but the pricing of their vehicles was not up to the mark for Indian buyers. This allowed companies like Maruti Suzuki, Tata, Honda & Hyundai to dominate the Indian market. Let us know your thoughts in the comment section below.