Ford posts a profit in India, 20 years after driving in
The emerging markets plan has helped Ford grow its India business from $2.1 billion in 2015-16 to $2.8 billion in 2016-17 and $3.4 billion in 2017-18
New Delhi/Mumbai: Ford Motor Co. has finally turned around its operations in India after more than two decades of presence in what is currently the world’s fastest-growing major auto market. For the first time since it entered the country in 1995, Ford’s India operations posted a profit in the year ended 31 March, two people with direct knowledge of the matter said. The revival in fortunes may just be the nudge the Detroit, US-based automaker needs in an increasingly competitive market and a rapidly changing mobility space.
Ford is using India as a test bed for its so-called “Emerging Market Operating Model (EMOM)”, which essentially implies cutting costs “wherever possible” through alliances, local joint ventures, technology outsourcing, platform sharing, etc., the people said on condition of anonymity.
The results are already starting to become visible: the EMOM plan has helped Ford grow its India business from $2.1 billion in 2015-16 to $2.8 billion in 2016-17 and $3.4 billion in 2017-18.
For the first time in its history, Ford India sales scaled $1 billion during the year ended 31 March.
The unlisted Indian subsidiary is likely to submit shortly its financial results for the last year to the Registrar of Companies under the ministry of corporate affairs.
A third person aware of the matter said EMOM was first mooted by Ford and aims at comparing the true India cost with that of peers in the industry and benchmarks profitability and competitiveness to other automakers.
For comparison, Maruti Suzuki India Ltd, the country’s top carmaker, developed a hatchback for about ₹1,000 crore, while Ford spent nearly $300 million (approximately ₹3,500 crore) to build the Aspire vehicle platform on which its entry-level cars are built. Little wonder that Maruti Suzuki makes about ₹8,000 crore in profit every year and corners more than half in domestic market share.
Nevertheless, the EMOM programme has helped Ford reduce its structural costs by 40%, through a sharper focus on localization, sourcing and commonality, a classic feat when juxtaposed with the exit strategy that its oldest rival, General Motors Co., chose for India.
Ford’s global chief executive, Jim Hackett, and promoter Bill Ford have approved a so-called “single-window clearance” for India at its Asia Pacific Approval Authority in Singapore.
This means the local operations won’t have to seek a nod from Detroit on any of the strategic decisions it wants to take—a move dynamically opposite of the Dearborn-based company’s “One Ford” strategy originally conceived by its famed chief executive, Alan Mulally.
A spokesperson for Ford India confirmed the piloting of the EMOM strategy in India. The spokesperson declined to comment on future products in response to emailed queries sent on Friday.
According to Automotive News, Ford has initiated an $11 billion global restructuring of operations that will stretch into the next decade. EMOM could just be one such step in that direction.
The company is struggling in markets such as Europe, China and South America, which has necessitated the restructuring.
The recently concluded agreements between Mahindra and Mahindra Ltd and Ford India is only a cog for the maker of Ecosport cars. If Ford can scale this model up, India could just be its new torchbearer for emerging markets.
The partnership between Mahindra and Ford will result in the development of two new sports-utility vehicles and an electric car. The first of the three products will be launched in 2020 in the Indian market, said the people cited above.
Besides, Ford India’s decision to arrive at an agreement with Mahindra for the latter to develop petrol engines is an indication of its restructuring of operations in emerging markets, especially in India, which will help trim development cost of vehicles to a bare minimum.
Separately, the company has also asked some of Ford Group India employees to shift to its Global Technology and Business Centre in Chennai from its Gururgram office.
“No one from Ford India operations will be moving to Chennai. However, my guess is that your source might be alluding to Global Business Services (GBS), a unit of Ford Motor Company in India, where the IT teams earlier based in Gurgaon will now be co-housed at Ford’s upcoming Global Technology and Business Center (GTBC),” the Ford India spokesperson said.
A spokesperson for Mahindra said that any development that is ready to be shared will be done at an opportune time.
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