When Ford Motor Co built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom – the next China.
The economy had been liberalised in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy.
Rising disposable income would help foreign carmakers to a market share of as much as 10%, forecasters said.
Last week, Ford took a $2 billion hit https://reut.rs/3nFLvnF to stop making cars in India, following compatriots General Motors Co and Harley-Davidson Inc in closing factories in the country.
Among foreigners that remain, Japan’s Nissan Motor Co Ltd and even Germany’s Volkswagen AG – the world’s biggest automaker by sales – each hold less than 1% of a car market once forecast to be the third-largest by 2020, after China and the United States, with annual sales of 5 million.
Instead, sales have stagnated at about 3 million cars. The growth rate has slowed to 3.6% in the last decade versus 12% a decade earlier.
Ford’s retreat marks the end of an Indian dream for U.S. carmakers. It also follows its exit from Brazil announced in January https://reut.rs/39fUnrq, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.
Analysts and executives said foreigners badly misjudged India’s potential and underestimated the complexities of operating in a vast country that rewards domestic procurement.
Many failed to adapt to a preference for small, cheap, fuel-efficient cars that could bump over uneven roads without needing expensive repairs. In India, 95% of cars are priced below $20,000.
Lower tax on small cars also made it harder for makers of larger cars for Western markets to compete with small-car specialists such as Japan’s Suzuki Motor Corp – controlling shareholder of Maruti Suzuki India Ltd, India’s biggest carmaker by sales.
Of foreign carmakers that invested alone in India over the past 25 years, analysts said only South Korea’s Hyundai Motor Co stands out as a success, mainly due to its wide portfolio of small cars and a grasp of what Indian buyers want.—Agencies