Ford Revs Up in India

The carmaker, looking to further exploit the fast-growing Asia market, has announced it will spend $500 million to boost production in Chennai

by Frederik Balfour

In many parts of the world, Ford Motor (F) is facing difficult times. In the U.S. it has lost its No. 2 spot to Toyota (TM) for the first time. In Britain, Ford is looking to sell its money-losing Jaguar and Rover divisions to Tata Motors of India. In Asia, though, Ford is focusing on growth in some of the world's fastest growing and profitable markets.

The latest evidence of its commitment to the region was disclosed on Jan. 8 with the announcement that Ford will plunk down half a billion dollars to expand its manufacturing facilities in the southern Indian city of Chennai. The $500 million investment will go toward doubling its current capacity, to 200,000 units per year, and to building a new facility that can produce 250,000 engines a year. The new investment brings Ford's total capital expenditures in India to $875 million.

The India deal, made public just two days before the Delhi Auto Show opens on Jan. 10, is the latest in a spate of initiatives Ford has rolled out for the region. In October, the Detroit-based automaker unveiled a $500 million investment in Thailand to build cars in a market still dominated by pickup trucks. That announcement came just two weeks after the opening of Ford's $510 million auto assembly and engine manufacturing plant in Nanjing, in China, where it also produces vehicles in the western city of Chongqing.

Playing Catchup in Asia

These manufacturing centers form the pillars of Ford's three-pronged strategy in the region, one of the few bright spots for the beleaguered automaker. "We have embarked on a strategy of growing our business across Asia Pacific," John Parker, Ford's executive vice-president for Asia, Pacific & Africa said in an interview in his Bangkok office. "We want to grow our manufacturing and supply footprint in China, Southeast Asia, and India."

There's no underestimating the importance of the region to Ford. Parker estimates that Asia, the Pacific and Africa will account for 70% of the growth in demand for passenger cars in the next decade as consumers grow increasingly affluent and automobiles become more affordable. But so far Ford is a laggard. For instance, it sold 42,060 cars in India in 2006, a figure that is expected to slip to about 40,000 in 2007, for a 2.7% market share.

That's a far cry from domestic market leader Maruti Suzuki, with a commanding 50% share of the 1.45 million vehicle market, and Tata, with a 24% share. It also trails far behind Hyundai, the top foreign automaker with 15% market share. And it lags behind its crosstown rival, General Motors (GM), which enjoys a 4% share, thanks to a 40% jump in vehicle sales to 60,032 last year, compared with 35,823 vehicles in 2006.

All Eyes on Tata's $2,500 Car

John Bonnell, director of Asia Pacific forecasting for J.D. Power & Associates, says the Indian investment should help boost sales. "By expanding its operations, Ford will be able to improve its cost structure and competitiveness as well as its product mix by bringing in a new model to the market," he says.

Affordability, of course, is a key issue in this fast growing region, particularly in emerging markets like India and China. However, while Parker says "everyone is watching with great interest" Tata Motors' plans to unveil its $2,500 car (BusinessWeek, 1/3/08) on Jan. 12 at the Delhi Auto Show, Ford will target Indian consumers with deeper pockets with its new model.