Ford Motor Co. will shut its car factories in India and record roughly $2 billion in restructuring charges, scaling back significantly in a country that past management saw becoming one of its three biggest markets.
Manufacturing of vehicles for sale in India will stop immediately, and about 4,000 employees will be affected, the carmaker said in a statement Thursday. Ford will wind down an assembly plant in Gujarat by the fourth quarter, as well as vehicle and engine manufacturing plants in Chennai by the second quarter of next year.
“The decision was reinforced by years of accumulated losses, persistent industry overcapacity and lack of expected growth in India’s car market,” said Anurag Mehrotra, managing director of Ford India. “We have not been able to find a sustainable path forward to long-term profitability that includes in-country vehicle manufacturing.”
“Ford India will cease manufacturing vehicles for sale in India immediately; manufacturing of vehicles for export will wind down at Sanand vehicle assembly plant by Q4 2021, and Chennai engine and vehicle assembly plants by Q2 2022. Ford India will restructure its operations with plans to significantly expand its Chennai-based Ford Business Solutions team and bring to market some of Ford’s iconic global vehicles and electrified SUVs while ceasing vehicle manufacturing in India,” the company said in a statement.
Ford shares slipped 0.6% before the start of regular trading. The stock has surged 48% this year.
Foreign automakers have found it difficult to gain a foothold in the value-conscious Indian market dominated by Maruti Suzuki India Ltd.’s cheap cars. The government’s high tax regime, which imposes levies as high as 28% on gasoline vehicles, has also been a major roadblock. Toyota Motor Corp. last year said it won’t expand further in India due to high tariffs, while Harley-Davidson Inc. has exited the market. General Motors Co. pulled out in 2017.
The moves by Ford are a further blow to Prime Minister Narendra Modi’s Make-in-India program, which encourages companies to manufacture locally. Tesla Inc. has urged Modi’s administration to allow it to import cars more cheaply before it commits to setting up a factory in the country.
Ford’s moves come months after it dropped a plan to cede most of its Indian operations to local sport utility vehicle maker Mahindra & Mahindra Ltd. Ford India racked up more than $2 billion in losses during the past decade and wrote down the value of its business by about $800 million in 2019.
Ford was one of the first global car companies to enter India when the economy opened up in the early 1990s. The company first set up shop in 1926 but shut down its initial operation in the 1950s.
Following the factory closures, Ford will import and sell some vehicles, including Mustang coupes, but the sale of models including the Figo, EcoSport and Endeavour will cease once existing inventory at dealers is sold.
Ford considered several options, including partnerships, platform sharing and contract manufacturing with other carmakers before deciding to shut down factories in India. It is still considering the possibility of selling its manufacturing plants in the country.
Ford India has an installed manufacturing capacity of 610,000 engines and 440,000 vehicles a year. It also exported its models such as Figo, Aspire, and EcoSport to over 70 markets around the world.
In January this year, Ford Motor Co and Mahindra & Mahindra had decided to scrap their previously announced automotive joint venture and instead chose to continue independent operations in India.
In October 2019, the two companies had announced an agreement under which Mahindra & Mahindra would acquire a majority stake in a wholly-owned arm of Ford Motor Co (FMC) that will take over the automotive business of the US auto major in India.
The new entity was to develop the market and distribute Ford brand vehicles in India while also selling both – Mahindra and Ford – cars in the high-growth emerging markets.
As part of the agreement, M&M was to acquire 51 per cent stake in a wholly-owned arm of the US auto major — Ardour Automotive Private Ltd, presently a wholly-owned subsidiary of Ford Motor Company Inc, USA for around Rs 657 crore. The balance 49 per cent equity shareholding in Ardour was to be held by FMC and/or any of its affiliates.
The new venture was also envisaged to acquire the automotive business of Ford India Pvt Ltd (FIPL), a wholly-owned subsidiary of FMC, that has been engaged in the automotive business in India since 1995.
The automotive business which was to be acquired included vehicle manufacturing plants of Ford India at Chennai and Sanand but excluded the separate powertrain facility in Sanand, which is essentially used for FMC’s global markets, and the powertrain division of FIPL also did not form part of the deal.
Ford is the second American auto major after General Motors to shut plants in India.
In 2017 General Motors announced that it would stop selling vehicles in India as there was no turnaround in its fortunes here even after struggling for over two decades to make a mark. The company sold its Halol plant in Gujarat to MG Motors, while it continued to run its Talegaon plant in Maharashtra for exports but ceased production there last December.