Why Ford India Chose To Form A Joint Venture With Mahindras

On Tuesday (1 October), US carmaker Ford Motors Company and Indian vehicle manufacturer Mahindra and Mahindra announced the creation of a new joint venture.

Mahindra will hold a controlling stake of 51 per cent in the new venture that will develop, market, and distribute Ford vehicles in India.

The new venture will go on stream sometime in the middle of next year, subject to the approval from regulatory authorities — with Mahindras managing the operations.

Ford Motors will transfer its assembly plants in Chennai and Sanand, including its staff to the joint venture. However, Ford will continue to retain its Global Technology and Business Services Unit, Ford Credit and Ford Smart Mobility.

Ford’s move to have a joint venture takes us back to what the American carmaker did when it entered the Indian market.

Ford made its entry into India in 1995 through a 50:50 joint venture with Mahindras, in tune with the government rules then when it opened up the automobile sector for foreign manufacturers.

Mahindra Ford began its foray into India offering the Ford Escort on sale. In 1998, Ford increased its stake in the joint venture to 72 per cent.

In 2005, Mahindras sold its stake in the venture to end the partnership with Ford. Throughout their partnership, Mahindra Ford failed to achieve its sales target.

The Indian company, however, learned the best global practices in manufacturing that were used to produce one of its most successful product Scorpio.

In the nearly 24 years that Ford has been operational in India, it has not been able to garner adequate market share in the commercial vehicles market.

Ford’s first success in the Indian market was its Ikon model that was launched in 1999. Other models Mondeo and Fusion that followed were not as successful.

Ford EcoSport was the next model that did well in the market, while other models such as Figo and Aspire did moderate business.

Launched in 2013, the EcoSport was the only model that was successful for Ford from its India operations.

In 2016, Ford introduced its iconic Mustang model in India. But since the model was imported into the country fully, it attracted higher customs duty and was priced three times what it costs in the US.

Still, Ford was able to sell over 250 of the Mustang model in the first nine months of its launch before plateauing.

More importantly, Ford was able to garner only a little more than 2.5 per cent of the Indian commercial vehicle market share.

Ford officials have been unhappy with the company’s market share in India. With this kind of market share in a growing market like India, the company was continuously making losses despite investing $2 billion.

Why hasn’t Ford been successful in India? What’s wrong with the American company?

Some of the Indian buyers who have bought Ford vehicles have been unsparing in their criticism of the company vehicles. One buyer lamented on social media that the Ford Aspire 1.2 litre petrol model he owned was the worst he had ever driven.

Another customer complained about high maintenance cost that made the owning of a Ford vehicle unviable. One customer said he had a beast of a Ford Figo vehicle.

Another said a lack of spares was a menace though he termed the driving experience with the American vehicle the best. But some of the customers say that its top-end model Endeavour is world-class.

However, the overall impression is that Ford didn’t cater to Indian preferences and tastes. Lower resale value for Ford vehicles has also affected it.

Despite these, Ford will continue to function independently in India through its global technology and business centre in Chennai.

The technology and business centre will employ over 10,000, next only to its Dearborn facility in Michigan, the US.

The joint venture with the Mahindras will also see Ford explore electric vehicles that are seen as the next-generation vehicles.

With Mahindras understanding the Indian market fully, it is likely that Ford might gain more from the joint venture than having ploughed a lonely furrow all these years.