Ford Motor Company’s decision to close its Indian operations was met with shock and defensiveness on Friday, as it became the latest American company to close its doors in a country with both tremendous potential and significant challenges.
The decision, announced on Thursday, would affect 4,000 employees, hundreds of dealers, and a large number of customers.
According to Vinkesh Gulati, president of the Federation of Automobile Dealers Associations in India, which represents more than four-fifths of the country’s retailers, more than $272 million has been invested in the establishment of dealerships that employ approximately 40,000 people.
Many Indians were expecting their new Ford vehicles to arrive on Friday, the day of the Hindu festival of Ganesh Chaturthi, the birthday of a god revered as the bringer of good fortune and a symbol of prosperity. It may now be difficult to sell those vehicles.
“The first priority is service, but when a company exits, no comment for confidence building will ring true because customers are scared,” Mr. Gulati said over the phone.
Ford is the most recent prominent American vehicle manufacturer to exit India, following Harley-Davidson, which left in the winter of 2020, and General Motors, which left in 2017.
Global manufacturing behemoths have long viewed India’s growing middle class as a market to seize. They were also enticed by the country’s cheap labour and Prime Minister Narendra Modi’s promises to cut red tape and make business easier to conduct.
Despite some progress, the government has struggled to remove barriers and build a robust ecosystem. According to industry experts, a lack of demand has discouraged the private sector.
The pandemic has also had an impact on the economy. On paper, India has recently experienced strong economic growth, but the official figures benefited from a sharp contraction last year when the government clamped down on the economy to combat the coronavirus.
Economists predict that India will struggle in the coming years to make up for lost growth due to the pandemic. Last year, real household income fell as unemployment rose and tens of millions of middle-class Indians fell into poverty.
Ford intends to close its plants in India. A vehicle assembly plant on the country’s western coast in Gujarat will close by the fourth quarter of 2021, and another in the southern Indian state of Tamil Nadu will close by the second quarter of 2022. The company hopes to restructure its operations to focus on electric vehicles and niche markets, such as supplying imported Mustangs to India.
In the local media on Friday, government officials defended India’s business environment, claiming that other automakers have thrived. Nonetheless, industry data show that demand for new vehicles has weakened in recent years, and automakers are dealing with industry-wide challenges such as a tight computer chip market.