Ford Motor may sell Gujarat factory in emerging market strategy shift4 min read . Updated: 11 Sep 2019, 11:24 PM IST
- Ford spent about $1 billion to build the plant, which can produce up to 240,000 vehicles and 270,000 engines a year
- Ford’s operations in India have been struggling and recent product introductions could not draw robust volumes
New Delhi: Ford Motor Co. is in early discussions with at least one global automobile company to sell one of its twin factories in India, two people familiar with the matter said, underscoring a major shift in strategy for the automaker and its struggles in this intensely competitive market.
Ford is exploring the sale of its newest factory in the country, located at Sanand in Gujarat, said the people cited above. Both declined to be named as the talks are private.
The negotiations for the potential sale are being handled directly by Ford’s Asia- Pacific headquarters in Shanghai, the people said. They did not name the companies Ford is in talks with or say when the discussions are expected to conclude.
The Dearborn, Michigan-based automaker spent about $1 billion to build the Sanand plant, which opened in March 2015 and can produce up to 240,000 vehicles and 270,000 engines a year.
Ford’s moves are linked to the company’s likely realization that it may not need two factories in India in the future, said the first person cited above. Globally, Ford is also trying to trim its overall exposure in emerging markets, as part of the $11 billion restructuring process.
“The Sanand plant is a more than feasible option for any existing or new original equipment manufacturer looking for setting up capacity, as it is a very modern facility and close to the port. Hence, the logistics cost can also be reined in," the person said. “It is very difficult to predict the final outcome at this level since these kinds of transactions take a long time."
Ford builds the Aspire compact sedan and Figo hatchback model in Sanand that are mainly exported. Its other factory, at Chennai, opened in 1995 and has an installed capacity of 200,000 vehicles and 340,000 engines a year. Ford makes the EcoSport and Endeavour sport utility vehicle models in Chennai.
While the Sanand facility caters mainly to vehicle exports to more than 30 countries, Chennai is used primarily for supplies to the domestic market.
A spokesperson for Ford’s unit in India denied plans to sell the Sanand factory and said the company is continually working to expand its presence and product portfolio in India, including Sanand, where its vehicle and engine plants will continue to play their role as an export centre.
“We reject the rumours about exploring opportunities to sell the Sanand plant as mentioned by your sources in the industry. We find the assumptions by the sources both malicious but unfounded —choreographed to harm Ford’s reputation in Gujarat," the spokesperson said in response to emailed queries. “Ford remains committed to growing its customer base and product portfolio in the world’s fourth-largest automobile market and will continue to make in India, for India and the world," the spokesperson said.
A sale of the Sanand plant will be a signal of the difficulties faced by Ford and its US rival, General Motors Co. (GM) in India. Both failed to make major dents in the Indian market despite having head starts compared with some of their bigger rivals in the country.
GM announced in May 2017 its decision to stop selling vehicles in India. It sold a factory at Halol in Gujarat to China’s SAIC Motor Corp.
Ford’s operations in India have been struggling and recent product introductions could not draw robust volumes. The company now essentially uses India as an export base for emerging and developed markets.
Ford’s domestic sales during April-August fell 26% from a year earlier to 30,010 units, while exports declined 11% to 57,985 units. In FY19, domestic sales rose 2.5% to 92,937 units, but exports fell 10% to 162,801 units, according to the Society of Indian Automobile Manufacturers.
To pare its investment commitment, Ford has partnered Mahindra and Mahindra Ltd (M&M), one of India’s top SUV makers, in vehicle development, electric mobility and connected vehicle solutions. Some of the M&M dealers are also selling Ford vehicles in areas where the latter doesn’t have retail outlets.
As part of the alliance, Ford and M&M are jointly developing a midsize SUV to be sold separately by both companies. They have also decided to share Bharat Stage (BS) VI-compliant engines, wherein M&M will develop and supply BS VI-compliant petrol engines to Ford.
“The alliance with Mahindra is a clear enough indication that Ford will reduce its commitment in India, which is in line with its strategy in other emerging countries. So, at this juncture, the company doesn’t need two plants in a market like India. Hence, exploring opportunities to offload the asset is a prudent approach," said the second person cited earlier.
Puneet Gupta, associate director for vehicle forecasting at IHS Markit, said the strategic moves by Ford India show that the company is reshaping its strategy.
“On one side, Ford India remains committed and is continuously investing in their global engineering centre and trying to capitalize on engineering skills of Indians. On the other side, Ford’s collaborations with Mahindra also means Ford India is trimming its independent manufacturing operations in India," Gupta said. “We feel Ford has learnt the art of making in India very well and in the past have been able to produce world-class products at a very competitive price."