Ford is world’s fifth largest carmaker by volume and fourth largest in terms of revenue
Ford has had a long history in the Indian auto market. It was among the first global automotive companies to commence operations here in the 90s. However, due to mounting losses and below average sales, Ford has decided to wrap up India operations.
Over the past 10 years, the company has incurred USD 2 billion in losses. While production for domestic market has stopped with immediate effect, production for export markets will stop completely by Q2, 2022.
Ford dealers worried
Ford has assured that it will be working closely with employees, dealers, unions, suppliers and other stakeholders to reduce the impact of its India exit. However, Federation of Automobile Dealers Associations (FADA) has expressed concerns about these recent developments.
FADA President Mr Vinkesh Gulati said that he had a discussion with Ford India President & MD, Mr Anurag Mehrotra. Ford has promised that dealers who continue to offer vehicle service to customers will be adequately compensated.
While FADA has appreciated Ford’s plan for their dealers, it is concerned that it may not be enough. That’s because there are around 170 Ford dealers with around 391 outlets. Investments of approximately Rs 2,000 crore have been made for setting up these dealerships. It is unlikely that dealers would be able to recover such significant investments. FADA also pointed out to around 40k people that these dealerships employ.
Another area of concern is existing inventory of around 1,000 vehicles. Dealers have taken loans worth around Rs 150 crore for their inventory from leading banks. This further complicates the financial situation for dealers. A number of demo vehicles are also with the dealers. Since Ford has announced its exit, very few customers will be willing to buy these cars. Even discounts and offers may not work to motivate customers to buy new Ford cars.
FADA says that the worst impacted will be new dealers that were recently appointed by Ford. Just around five months back, Ford was regularly inducting new dealers. Such entities may have to face significant financial losses.
Call for Franchisee Protection Act
According to FADA, such abrupt exits by automakers are likely due to absence of a dedicated Franchisee Protection Act in the country. Earlier also, there have been similar developments involving General Motors, Harley Davidson, Man Trucks, and UM Lohia. There have also been multiple cases involving fly by night Electric Vehicle companies.
FADA says that it has been requesting the government to introduce Franchisee Protection Act. Such laws already exist in countries such as China, Russia, Japan, Australia, Italy, Sweden, Brazil, Mexico, Malaysia and Indonesia. Dealers in these countries are relatively less impacted, as compared to their counterparts in India.
Franchise Protection Act for automobile dealers in the country has already been proposed by the Parliamentary Committee on Industry. This act will be beneficial for the entire ecosystem including manufacturers, auto dealers and customers. It remains to be seen when this act will finally be passed by the government.
