“We don’t get many chances to make an investment of this magnitude,” said Joe Hinrichs, president of Ford Asia Pacific and Africa. “It’s a bet on India’s future, and a bet on Ford’s future in the country and the region.”
With the West’s economies sluggish and car markets there saturated, and with China’s explosive growth beginning to taper off, India offers a mouth-watering alternative.
Passenger car sales grew 137 percent in the past six years, but there are still only about 13 cars per 1,000 people in this country of 1.2 billion, compared with 35 or 40 in China and more than 800 in the United States.
India is the world’s sixth-largest car market and is expected to take third place behind China and the United States by the end of the decade, the management consulting firm McKinsey and Co. predicts, with annual sales growth of 12 to 14 percent from 2014 to 2020. That would bring sales of cars and sport-utility vehicles to more than 6 million vehicles and penetration of cars per 1,000 people to the sort of levels currently seen in China.
Ford has been a little slow to the party, perhaps because it had neither the financial resources nor the products to target the Indian market aggressively.
Despite opening an assembly plant in the southern city of Chennai in 1998, Ford’s market share is just 3 percent here, compared with 17 percent in the United States and 10 percent in Brazil. But as new, smaller models such as the Figo make inroads into the Indian market, the company is confident that it can make up lost ground.
This new focus on India has required something of a philosophical shift for America’s big auto manufacturers, a post-downturn realization that the old ways of doing business no longer guarantee success, said Michael Dunne, president of Dunne and Co., a Hong-Kong based investment advisory firm specializing in Asia’s car markets.
In the past, U.S. carmakers tended to launch products in emerging markets that were successful in Europe “and anticipate that customers will trade up to the higher price level,” Dunne said.
“That has worked in other car markets, but it didn’t work in India, which is quite price-sensitive. They have now realized, ‘We’ve got to go to the market, we can’t wait for the market to come to us.’ ”
That means smaller, cheaper cars and taking the battle to more-established Asian operators such as Toyota and Hyundai. It means adapting faster than ever before to rapidly changing tastes. But the potential rewards mean that this is a battle that American carmakers can no longer avoid.