New Delhi: Ford India plans to launch a small car, but wants the government to firm up the definition of small cars.
“Small cars will definitely be a priority for us,” Arvind Mathew, president and managing director of Ford India, told Mint. “But we’re looking for stability of policy,” he said.
The launch will give Ford a foothold in the largest segment of India’s one-million-a-year car market. Three out of every four cars sold in the country are small cars, a segment currently dominated by its largest car-maker Maruti Udyog Ltd, which has 50% of the market.
Mathew said he may need until 2010 to introduce the car as the government’s definition will determine what he can bring to the customer. In the last budget, the government cut excise tax by 8% for small cars, which it defined as vehicles that are less than four metres in length and additionally with an engine capacity that doesn’t exceed 1.2 litres in petrol and 1.5 litres in diesel. The budget announcement led to a fall in the prices of models such as Maruti’s WagonR and Hyundai’s Santro by as much as Rs 15,000, and prompted rivals such as General Motors and Honda Motor Co. to firm up plans to make small cars.
However, the government in January released its 10-year blueprint for the automotive industry, redefining small as less than 3.8m long, potentially derailing the investment plans of carmakers who have developed models to specifically avail of the tax breaks announced in the previous budget.
In Ford India’s case, if the definition of four metres and the engine sizes prevails, then the company will need to engineer the petrol engine, but has diesel engines that meet the specifications. If, however, the length is reduced 3.8m, it will have to develop a new base and chassis.
Small cars “are driven by cost and have to be on razor-thin margins”, said Mathew, adding that the company was “looking at 80-85% localization’’.
Mathew said he would look for additional funding to make small cars which would compete with brands such as Hyundai’s Santro and Maruti’s Swift. He declined to say how much funding would be required. He plans to roll them out of his existing factory at Chennai which can make up to one lakh cars.
“Compact cars are a must (for a company) to make a dent in the Indian market,” says Ashvin Chotai, Asian automotive principal for consultancy firm Global Insight. “Over 50% demand is driven by first-time buyers who prefer smaller models.”
Ford Motor Corp., headquartered in Dearborn, suffered a loss of $12.7 billion in 2006—the worst in its history. With the company not expecting its North American operations to be profitable till 2009, it is focusing on emerging markets such as China, India and Thailand to expand operations, something that its rivals in the US, such as General Motors and DaimlerChrysler, too are doing.
The government’s vacillation on the definition of a small car has left most global carmakers operating in India unhappy. General Motors and Hyundai have led the protest against the change in rules in the January automotive plan.
“We’ve made sizeable investments on product development after the finance minister specified the length and engine capacities (in last year’s budget),” said P. Balendran, vice-president at GM India. “It’ll (the change in definition) benefit select manufacturers,” he wrote in a letter to an automotive lobby group, reacting to this amendment to the plan which was first released in September last year.
General Motors is investing Rs1,360 crore in Pune to build a factory that will make the Spark small car. It claims that it had to delay the launch of its Aveo-UVA car so that it could conform to the specifications listed in the budget. Rival Honda Siel Cars India has shortlisted Rajasthan to build a factory to make a yet-unnamed small car.
Ford doesn’t sell any small cars in India, nor does it sell larger sedans. Mathew says that is another segment he plans to target because rivals have grown that class of cars, and a booming economy, growing at 9% per year will stoke demand for more expensive cars.
Ford, which entered the Indian market in 1995, trails rivals such as Honda and Hyundai. In the only segment it operates in, that of the mid-sized sedan, it has moved to the No2. slot after Honda on the back of its new Fiesta model.
Mathew said that as the company expands into models in a different segment “something’s gotta give” and he would “rationalize some of the existing car” models.