Designed for India, Ford looking at big numbers for its small car9 min read . Updated: 30 Apr 2009, 11:41 PM IST
Designed for India, Ford looking at big numbers for its small car
Designed for India, Ford looking at big numbers for its small car
New Delhi: An old India hand, John Parker brought Ford Motor Co. to India in 1995. As the first managing director of the company’s joint venture here with Mahindra and Mahindra Ltd, he’s seen the Indian market evolve for over a decade now.
A week after he visited the Shanghai Motor Show, Parker, who as executive vice-president for Asia and Africa at Ford reports directly to president and CEO Alan Mulally, shared his thoughts on new technologies, the auto maker’s plans for Asia and how the Indian market fits into them. Michael Boneham, managing director of Ford India Pvt. Ltd, joined in in the conversation.
At the Shanghai Auto Show you were quoted as saying that China is very keen on promoting small cars and that (Ford) plans to introduce the EcoBoost technology. Any plans to introduce that here in India?
Parker: It’s a regionwide plan to bring EcoBoost coupled with better transmissions. EcoBoost direct injection turbo-charged engines give us 15-20% fuel economy improvement. But you can also do what we call GDI, which is just the direct injection and the upgrade to the petrol engine, which we’ll also bring here and into the rest of Asia.
When you say (bring) here (India), do you have specific plans?
We’re working on upgrading our technology from a fuel economy point of view and we think there’s a lot of room besides hybrids and electric vehicles, which are important but conventional diesel and petrol technology can still be lifted quite substantially.
Do you think that fuel efficiency will be a key differentiator in markets like India and China and other price conscious markets?
Parker: I think it will be and it won’t just be (in) price-conscious markets. It’s more relevant in price-conscious markets but I think the reality is oil is a diminishing resource, and so with a diminishing resource it’s going to get increasingly difficult. It went up to $120-150 a barrel and now it’s back down to $50 because the economy is in trouble, but I think Ford is fully expecting oil to return to higher levels and we’re preparing our products to cope with that eventuality.
Are there any lessons you’ve learnt due to the downturn in sales that’s taking place?
Parker: I don’t think it’s something we learnt that’s new but it’s a reinforcement of the fact that you’ve got to watch your cost base. It’s no good being profitable when everything’s in good shape and the industry is growing 10-15-20%. And, quite frankly anybody can make money in those environments. With your cost base you need to be in a position so that when things get tough you can still be eking out a profit. So I think it just reinforced for us the urgent need to reinforce that your cost base is reduced.
How much have you cut costs by?
Parker: Around the region, for instance, we’ve cut 30-40% of our fixed marketing costs...a lot of that through efficiency, not by reducing our communication with the customer. We’re operating as one region. For instance, in ASEAN (Association of Southeast Asian Nations), we’ve had five or six countries all developing independent ads. (That) doesn’t happen anymore. We develop it once for all of those countries.
For Fiesta that was launched in Australia and South Africa we used the same material that Europe was using. We’ve also had to be very careful on our salaried personnel and overall costs. We’ve taken about a 25% reduction all around the region and in some places it’s as high as 40% in some of the more expensive markets that have been more affected by the downturn.
That (the salary cut) would be only for senior management?
Parker: From senior management all the way through the ranks including workers.
What about India?
Boneham: Here we haven’t had any specific redundancy programme but what we’ve done is put a freeze on hiring. We’ve communicated this previously. Obviously, there’s attrition that occurs. So, what we do then is structure the business and do the organization structure so that we can operate with lesser number of people… A lot of times, as John said, when things are going well, you’re not focusing on that base. There are things that perhaps creep in that perhaps are not as efficient as they should be.
India is seen as a good base in terms of talent and capability at reasonable costs and so some things that were done in the region previously are now done in India–some engineering work, some of our material planning and logistics activity for the region is being run out of India.
Could you explain by how much you’ve cut costs in India?
Boneham: We don’t share specific country-by-country numbers. You can be very sure that we’ve cut our cost base significantly. Also here in India, we’ve really hammered in on the cash element because we’re the biggest spender in the region basically other than a couple of others like China. We’ve looked at the use of our cash and our investment efficiency and we’ve found ways to significantly reduce our cash requirement. One of the things we’ve done is match our inventory and production requirements. Previously we would have had, say, up to 30-40 days of supply of vehicles that’s been reduced 60-70%. Our pipeline of vehicles has leaned out significantly and that obviously saves us a significant level of cash. And we’ve looked at our investment as well and found ways and negotiated hard with vendors and so on.
You are making money in India?
Boneham: We’re cash-positive. We’re investing a huge amount of money and we don’t have the volume to pay for that investment at the moment. We plan to in the years to come (referring to making use of their installed capacity).
Ford has big plans for its small car. What kind of numbers are you looking at?
Boneham: Big numbers! We’ve installed a significant level of increased capacity and from an India perspective, we hope to grow our share significantly because we haven’t been in this segment where 70% of sales here in India. We’ve done well in the segments we’re in. Endeavour is the market leader in the SUV segment. Fiesta and Ikon–Ikon’s grown 400% year over year as we’ve put a diesel engine–but it’s in a small segment with a lot of competition. We’ve put in 200,000 installed capacity, we’re not going to use that all next year because you build it up gradually. But from an India perspective, where we are now in terms of market share we want to at least quadruple it.
Parker: This is a key regional product. It’s obviously designed with India in mind and the Indian consumer and the Indian market environment but we have not approached this as a product for the Indian market alone. I was in Detroit in January and our new small car was one of our first products that Derek Cusac, our global head of product development, brought up on the screen when he was showing a montage of the new products coming around the corporation. That just gives you an indication that what’s different between the Ikon days and Fiesta days is this product is integrated into the region and corporate system.
What sort of integration was there in the development process?
Parker: Well, first of all, we have one product development organization So, it’s a cooperative project between the Europe, Asia-Pacific and India teams.
Other manufacturers such as Hyundai and Maruti Suzuki have developed India as an export bases for their small cars. Given that there would be a certain cost arbitrage, would you be looking at developing India as an export base?
Parker: Oh, absolutely. The intention with our new small car is to export the product to other places within the Asia-Pacific region and potentially outside. So there’s a key export component of the project…
Boneham: As we move forward, we (India) will be the low displacement engine base for the Asia-Pacific and Africa.
Ford India has an installed capacity of 200,000. What sort of numbers of the small car are you looking to sell and export?
Boneham: It will be dependent upon the demand for the product. We’d love to utilize every one of those 200,000 but we won’t (be able to) do that immediately... Our localization strategy is key to this because 80-85% of this is vehicle will be localized here in India in terms of suppliers...
Parker: (interjects) But we’re not talking specifically about that the export volumes is. It will be substantial. The export volume will be substantial but we’re still working on those elements of the programme.
The Ford Ikon diesel (introduced in November) is priced very aggressively. How will the small car be priced?
Boneham: Yes. We want people to see this as a real value equation and the cost of ownership is made up of a number of factors not just parts. The first part of the cost of ownership is the purchase price and this new small car is going to be positioned right in the heart of that 70% we haven’t been a prying into. That means the sub-four meters and an engine capacity that gives us the right tax breaks.
John, you’ve spent a lot of time in research and product development. Most of the research and development being done in India is restricted to localization and hasn’t gone to the stage of say the face lift capability, collaborative design, full body change and so on…
Parker: No I think it goes a little beyond that. We’ve taken the base product and we haven’t done what you call full top hat design but we’ve done substantial modifications of the product to suit the Indian consumer, Chinese consumers, etc., and the environmental conditions that they operate in. And you’ll see more of that on the new small car. One of our clear intentions in R&D is to develop our components both here and in China because we do believe that more of the engineering activity has to start moving to more of an Asian base.
We do a little bit of computer aided engineering work here on a global basis. And we’re very intent on growing that capability. Ford India product development activity doesn’t report to Mike (Boneham of Ford India) but to regional product development, which in turn doesn’t report to me but to the global head of global product development.
How has the Indian government been (in supporting the auto industry)…
Parker: I think the Indian government has been responsive and proactive but I’d have to say the most responsive and proactive has been the Chinese government.
What exactly has the Chinese government done?
Parker: They’ve got a massive economic stimulus package in the same way India has but they’ve also got a component of that focused on the auto industry. I don’t think India has that. In China, they’ve got specific incentives in the rural areas to encourage people to move out of the three wheel trucks into four wheel products. They have, for example, given a very substantial tax break from 10% down to 5% on all products below 1.6 litres for the rest of this year. Those two are specifically aimed at the auto industry and the Chinese government has said they want the auto industry to be a 10-million-unit industry this year, so there’ll be a 10% growth from last year. They’ve got a target in mind and they’re very aggressively pursuing their target.
The Indian government has also been responsive…
Parker: They’ve done some tax changes as you know: 24% down to 20%. I still see a big gulf between the small car tax regime and whatever is considered large cars and so, from my perspective, I probably want to see a rationalization and evening out of the tax regime but they have been responsive, particularly the Tamil Nadu government as well.