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Ford Motor Company bails on India, will shut car factories there – Aljazeera.com

Ford is shutting its car factories in India after Ford India racked up more than $2bn in losses over the past decade.

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 the western state of Gujarat by the fourth quarter, as well as vehicle and engine manufacturing plants in the southern city of Chennai by the second quarter of next year.

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.

Chief Executive Officer Jim Farley has signaled he will no longer pour capital into marginal markets that provide little or no return. In January, Ford said it would cease more than a century of manufacturing in Brazil and took a $4.1 billion charge. Farley instead is pushing deeper into China, the world’s largest auto market, where Ford’s Lincoln luxury line now sells more models than it does in the U.S.

“We are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas,” Farley said in a statement. “Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years and demand for new vehicles has been much weaker than forecast.”

In a filing, Ford said it will spread the restructuring charge over several years, booking $600 million this year, $1.2 billion in 2022 and the rest in subsequent years. The automaker reiterated it sees global restructuring charges this year of between $2.2 billion and $2.7 billion before interest and taxes.

Ford shares fell 2% at 9:44 a.m. in New York. The stock surged 48% this year through Wednesday’s close.

Difficult market

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.

Ford India had a market share of just 1.42% in August, compared with 1.9% a year ago, data from Federation of Automobile Dealers Associations showed. The local units of Japan’s Suzuki Motor Corp. and South Korea’s Hyundai Motor Co. together control more than 60% of the market.

The retreat by Ford is 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 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.

Uncertain future

The move calls into question the future of the EcoSport small SUV in the U.S., which the company had been importing from India. Ford introduced the model in the U.S. in 2018, but it has had little success. Sales are down 22% in the U.S. this year.

Ford considered several options in India, 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.

(Updates with share trading in seventh paragraph.)