Calling it Quits

by Murali Gopalan 18 Jan 2022


When Tata Group Chairman, N Chandrasekaran met Tamil Nadu Chief Minister, MK Stalin some weeks ago, reports began doing the rounds that there was finally a knight in shining armour for Ford’s facilities in Chennai and Gujarat.

The optimism could be short-lived since there is no indication that this will happen in a hurry. Tata Motors already has sufficient capacity across its car plants in Pune, Pantnagar and Sanand. What was it then that prompted Chandra (as he is popularly known) to meet Stalin? As the grapevine suggests, perhaps it was at the behest of the CM to try and persuade the Tata chief to consider a takeover of the Chennai facility.

Nobody really knows what transpired at the meeting. Perhaps it was about the other Tata Group investment for electronics earmarked at Hosur or just a courtesy call to discuss growth plans in the State. It is even possible that the future could even see an announcement coming from Tata Motors that it will take over the Ford facilities both in Chennai and Gujarat which will mark the perfect happy ending to the story.

For now, however, things are in a limbo and this has been the case since the time the American automaker made known at the beginning of the year that it was slamming the brakes on its India operations simply because they were not viable. Losses have been mounting for years now and barring a few successful models, Ford really could not sustain its presence here.

Its new CEO, Jim Farley (who had spearheaded a revival plan with Mahindra & Mahindra that was later shelved) clearly knew that there was no point pumping in more and more money when returns were just not coming in. With the proposed JV with M&M effectively buried, Ford could not possibly hope to survive solo in India. Soon after conveying its intent to call it quits, the company followed this up by announcing its decision to shut down operations in Brazil.

The magical BRICS (Brazil, Russia, India, China and South Africa) term coined many years earlier now seems a cruel joke in the backdrop of Ford’s decision. Emerging markets were touted as the best bet for growth not too long ago especially when titans like Carlos Ghosn insisted this was the only way for the global auto industry to survive. He was absolutely right except that this required careful planning in terms of costs, localisation, R&D exports and so on.

The potential, as Ghosn knew only too well, was immense but this had to preceded by rigorous homework on these parameters — putting the cart before the horse would be a suicidal recipe. His own company learnt its lessons after the Logan debacle and put in place a robust infrastructure to take the story forward while striving for economies of scale with Nissan, its global ally of over two decades.

Yet even for Renault-Nissan, the going has not been easy even while there have been some significant success stories in the form of the Duster, Kwid, Triber and Kiger from the French automaker. Its Japanese ally has finally struck gold with the Magnite but the challenge is to keep the growth story going. It was Ghosn who also conceived  of the Datsun comeback for emerging markets but this proved to be a disastrous experiment with customers rejecting the brand outright in India and elsewhere. Had the Ford-M&M alliance not broken up as it did, things would have been quite different with the partners going all out to work on new products and markets while ensuring that there was enough scale to keep the business model viable. When this did not happen, Ford knew that it had hit a dead end and the only way out was to exit the scene.

Where some fear to tread

Who will be ready to take over its plants at this point in time? It is not as if the car market is firing on all cylinders right now — sure, there is tremendous demand and a waiting period thanks largely to the semiconductor shortage — and is, in reality, not in the best of shape. Growth projections have gone awry and a country that was tipped to be the third largest producer of cars in the world by 2020 (after China and the US) is still in the fifth place.

This should not be seen as the sole reason why Ford left because one could always argue that the likes of Hyundai and a more recent entrant like Kia have done phenomenally well without cribbing about the state of affairs here. Ford just did not have the aggressive support that was required from headquarters in Detroit even while it had laid out a pragmatic roadmap under the leadership of Alan Mulally, its former president and CEO.

The One Ford initiative was absolutely the right thing to do in terms of fewer platforms and more commonality of parts where regions like India could work to their potential as small car hubs. The problem is that the world went topsy-turvy during the pandemic coupled with the added responsibility by automakers to invest substantially in areas like electrification. Clearly, from Ford’s point of view, a global alliance with Volkswagen for electric just made more business sense than staying on in markets like India or Brazil.

Coming back to the subject of its facilities which are up for grabs, it seemed at one point in time that the Hyundai Motor Group would be the ideal suitor especially in Chennai. After all, Hyundai has its plant located in the same automotive belt while Kia operates out of Anantapur in Andhra Pradesh. A combined operation at the Ford facility seemed the right thing to do especially with a robust vendor base in place.

Ola Electric was also touted as the other candidate for Ford’s Chennai plant but even this does not seem likely to happen in a hurry. That leaves Tata Motors which already has excess capacity and, as observers say, would be better off acquiring Ford’s Gujarat plant which is pretty much its neighbour at Sanand.

In the process, the Chennai unit could be left high and dry even while the Tamil Nadu government is going all out to find a suitor. After all, it is well aware that there are over 2,500 livelihoods at stake and this could be an awkward situation to cope with politically especially for a new regime that is keen on sending out the right signals.

The best bet for now is Chinese automakers which are doubly keen on establishing their presence in India. Two of them, SAIC and BYD with operations in Gujarat and Chennai respectively, have been around for a while and aiming for bigger things going forward. Then you have a Great Wall Motors which is still waiting to enter the country while Changan Automobile has taken a break since things were not quite working out to plan.

It is no secret that the political tensions between India and China have queered the pitch for the entry of these Chinese brands. Here, the fault lies squarely with China which has been indulging in needless provocation along the Ladakh border which has left India fuming. Clearly, in such a tense backdrop, there is no way the Centre is going to be generous and allow automakers from China to set up shop.

This is precisely the reason why Great Wall Motors has no option but to wait longer before it can even hope to get a foothold in General Motors’ Pune plant where the intent to acquire it was announced early last year. This was prior to the Delhi Auto Expo and when the treacherous face of Covid-19 still had not made its appearance in India. The selloff was crucial to GM’s exit plan from India where the wheels had already been set in motion with the sale of its Gujarat facility to SAIC in 2017.

With Pune out of its way, the American carmaker could bid the country adieu except that China decided to turn on the heat with its army occupying Indian territory and causing casualties in the process. As if the pandemic was not bad enough, this added dose of anxiety was the proverbial last straw for the Centre. And even while Great Wall Motors had showcased its SUV range at the Auto Expo in February 2020 and articulated its plans for India, it was now forced to keep all plans on hold.

Meanwhile, things were not going smoothly for GM either with its workforce at Pune clearly unhappy with the separation package offered to them. For now, the impasse continues and there is no indication what is in store for the future. It is crystal clear that till India and China shake hands and make up, Great Wall Motors cannot hope to start its innings at the Pune facility.

GM is also not going to wait forever either and it remains to be seen how the labour crisis will be averted.  As in the case of Tamil Nadu, the Maharashtra government knows only too well that this situation is a political hot potato which could boomerang badly since voters just cannot afford to be antagonised.

The third American brand, Harley-Davidson, which shut down operations at its Bawal facility is hoping for a revival of sorts from its new alliance with Hero MotoCorp. Its exit has left behind a trail of anger and frustration among its HOG (Harley Owners Group) riding community whose biggest complaint is that they just cannot access spares for their motorcycles. “We have been left high and dry with Harley not heeding our complaints,” says a rider.

In this scenario, it is imperative for Hero to set this aspect right if it is keen on getting the HOG community to spread the good word about Harley bikes. Beyond these three American auto brands which have botched up their Indian innings, the last 25 years have seen other prominent exits like Peugeot and Daewoo. The former saw no merit in continuing to operate in a market which it believed was way too small and the decision to call it a day was made by headquarters in Paris. Today, it is back in India albeit with Citroen leading the way.

Daewoo’s closure was a result of its parent going bankrupt and, ironically, it was GM (the acquirer of the Korean brand) which tried to get a foothold in its Surajpur facility near Delhi. The efforts did not yield any results and the plant moved on to an entrepreneur duo which tried hard to get a new business up and running. Surajpur lies deserted as also the former Peugeot facility near Mumbai… thousands of people lost their jobs in the process.

It is this fear that has Ford employees on the edge since it is now a matter of time before operations come to a grinding halt both in Chennai and Gujarat. Most of them are aware that getting another job in this difficult market is a challenge and will be hoping that a new owner emerges on the horizon soon. Yet, it is not as if this will automatically mean retaining their present jobs since manufacturers are keen on keeping their wage costs in check.

It would be wrong to solely blame policies in India for the exits of Ford and GM since there are other automotive brands which are in the market and fighting it out. Yet, there are issues to ponder over going forward. Companies like Renault-Nissan and Skoda Volkswagen are committed to India but acknowledge that this is not the easiest of markets to operate in given its price-sensitive nature. At one point in time, it was the thriving middle class that was seen as the focus point for manufacturers but this is now evolving into a twin layer of extreme affluence and affordability.

One could argue that the buyer base is still high for carmakers to hang in there and fight it out but this is not going to be easy. With new challenges also emerging like electrification, alliances are also being sewn up to pool in investments and competencies which has therefore seen the creation of Skoda Volkswagen, Stellantis and Toyota-Suzuki.

OEM alliances

These collaborations will hopefully prevent more exits from happening and it is perhaps time for policymakers to listen more carefully to the needs of the auto industry. After all, it contributes to nearly 50 percent of manufacturing GDP and cannot be left out in the cold.