Ford ends production in India after $2 billion in losses over past decade

The fifth-largest carmaker in the world, Ford, is pulling the plug on manufacturing in India. In an announcement on Thursday, Ford CEO Jim Farley indicated that the car company would wind down its factories by the end of Q2 2022.

An unsustainable market has been mentioned as the reason for Ford’s decision. Over the past decade alone, Ford has experienced more than $2 billion in operating losses in the region, and the business model doesn’t appear to be changing to profitability anytime soon.

“Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years, and demand for new vehicles has been much weaker than forecast,” said Ford’s Farley.

“As part of our Ford+ plan, we are taking difficult but necessary actions to deliver a sustainably profitable business longer-term and allocate our capital to grow and create value in the right areas.”

In a statement with CNN Business, the co-founder and CFO of CARS24 Ruchit Agarwal said, “While India appears to be a very promising market from outside, it is also a really tough one. He referred to the country as “price-sensitive” with new car prices averaging about $10,000. The popular EcoSport begins at more than $11,000 US (819,000 rupees) for the most basic trim level.

Ford currently captures less than 2% of the new vehicle market in India. General Motors also closed up manufacturing in the country in the past few years.

It’s expected to cost around $2 billion to restructure including accelerated amortizations by the end of next year.

Not a complete exit from India

Ford will remain a presence in India, though, despite winding down their car factories. Their dealerships will remain in operation, selling down the current inventory and providing service and parts support going forward. As well, Ford plans to import popular models like the Mustang into India.

Along with dealer support, Ford’s technology, engineering, and business divisions in India will continue. The Blue Oval company has plans to expand its Business Solutions team of 11,000.

Vehicle production is ceasing immediately, however, and the Sanand assembly plant will wind down by the end of the fourth quarter, affecting about 3,000 employees. By the end of the second quarter next year, the manufacturing plant in Chennai will close, affecting another 5,000 staff. Ford’s statement mentioned that they will “work closely” with affected employees going forward.

Shortly after a Brazil exit

The restructuring in India comes less than a year after Ford pulled the plug on another foreign market: Brazil. Earlier in 2021, three plants in Brazil ceased to operate after around $12 billion US in losses over the past decade. Prior to the announcement, Ford had operated in Brazil for more than 100 years. Farley’s statement of the move in January sounded very similar to Thursday’s: “With more than a century in South America and Brazil, we know these are very difficult but necessary, actions to create a healthy and sustainable business.”

Ford established a goal of increasing EBIT margins by 8% when Farley became CEO in October 2020. While the end of production in both Brazil and India may be hard to take, especially for the thousands of staff affected, Ford should come out of it with a healthier financial position that allows them to focus on their most profitable markets.

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