Editorial: When giant trees fall

The decision follows on the heels of Ford shutting down its last three plants in Brazil in Jan 2021. Having struggled to make a dent in the Indian automobile sector, the company had accumulated operating losses in excess of $2 bn over 10 years, and reported $0.8 bn non-operating write-down of assets. The immediate impact of the shutdown of manufacturing operations will be borne by Ford’s employees, and its wide network of suppliers, dealers and service staffers. 

While the company has said just about 4,000 jobs might be affected by this new development, industry bodies believe the repercussions are far-reaching and worrisome. According to the Federation of Automobile Dealers Associations (FADA), there are 170 dealers and 391 outlets of Ford India that have collectively invested upwards of Rs 2,000 crore. The dealerships employ 40,000-odd people, who are all going to be affected by Ford’s decision. The company’s dealers presently hold 1,000 vehicles, which adds up to Rs 150 crore via inventory funding from noteworthy banks. 

Veterans in the automobile space have drawn attention to the fact that there will be casualties on the supplier side for Ford India too. For every worker on the manufacturing plant, there are four workers on the supplier side, which adds up to 16,000 more employees who might be staring at an uncertain future. There might not be possibilities to absorb retrenched workers, as capacity utilisation is nowhere near 100 percent for most auto majors that have already been strained due to the impact of COVID-19. Shop floors in some of the top automobile factories in India have reported just 40 per cent production due to chip shortage precipitated by the pandemic. The spike in Work from Home led to a shortage of semiconductor components as demand for chips rose among manufacturers of digital devices. This has sent shivers down the spine of auto majors who are now compelled to pick up chips from the open market as opposed to directly procuring them from the manufacturers. 

As per observers, the company’s exit is a cautionary tale for MNCs keen on setting up shop in India. In the case of Ford India and its predecessor, General Motors, the adaptability of the vehicle manufacturer when it came to the local market was far below expectations of the consumers. Critics have bemoaned poor judgment and decision making citing that the company which had not even utilised its TN plant to its full capacity even once, went on to spent $1 bn on an ultra-modern, fully air conditioned, 60% automation-driven plant in Sanand, Gujarat. But perhaps, the biggest mistake that the pioneer of the compact SUV segment did in India was introducing sedans over 25 years ago, when the whole local market was rallying behind the hatchback. It was a volume game that the American behemoth refused to play though it had the installed capacity. 

For a nation that is actively engaging with the likes of Tesla to beef up the electric vehicles space, the going mantra should have been the more, the merrier. But Ford’s exit might prompt auto companies to adopt a heightened measure of caution when it comes to investing in India. To quote Maya Angelou, ‘When great trees fall, rocks on distant hills shudder...’ And that’s how stakeholders in the Indian automobile space are reacting to the news of this unceremonious exit. The future of the company’s two plants also hangs in the balance, with ongoing discussions on the possible sale or lease to other automotive players. A lot of push is coming from the Opposition in Tamil Nadu that has urged the CM to help salvage the situation. It’s anyone’s guess as to who might bell the cat in such a highly volatile and unpredictable market scenario.