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Ford (F) to Rejig India Operations: What You Need to Know

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Ford (F - Free Report) has called it quits on vehicle manufacturing in India, as it plans to shut down both its plants in the country. The U.S. auto biggie had been going through a rough phase in the world’s second-most populous nation, hence its decision should come as no big surprise. The firm has taken this step only after failing to find a sustainable path to long-term profitability in the country post evaluating other options like contract manufacturing with other carmakers, platform sharing and potential partnerships. Ford’s withdrawal of India operations will result in a cash outgo of around $1.7 billion (including various settlements) and non-cash charges of $0.3 billion.

Despite running manufacturing operations in India for more than 25 years, the company has struggled to command a strong foothold in the country. With less than 2% of the passenger vehicles market share in the nation and more than $2 billion of accumulated losses to date, it makes sense for Ford to withdraw from India, where achieving high levels of volume and profitability seems to have become a rather daunting task for U.S. auto giants. We say this as Ford is only the latest automaker to cease manufacturing operations in India, after its close peers General Motors (GM - Free Report) and Harley Davidson (HOG - Free Report) chose to exit the country in 2017 and 2020, respectively. These exits would have been a big blow to Indian Prime Minister Narendra Modi's efforts to attract global manufacturers to invest in domestic manufacturing in the country.

A market that had once promised considerable growth has now become increasingly dominated by Asian rivals including Suzuki Motor (SZKMY - Free Report) and Hyundai Motor, which have managed to develop low-cost cars that are more fitting for the price-sensitive market in India.

Currently, Ford sells five of its models — namely Figo, Aspire, Freestyle, EcoSport and Endeavour — in India. Except for EcoSport and Endeavour SUVs, the other models have not really been on customers’ buying list. To keep up amid the cut-throat competition, the automaker would have needed to slash car prices, which wouldn’t be economically viable. With demand for Ford’s vehicles shrinking rapidly in the country, restructuring of India operations had been imminent. The company plans to shutter plants in Gujarat and Tamil Nadu by fourth-quarter 2021 and second-quarter 2022, respectively. The restructuring is likely to impact 4,000 employees. The decision to stop local manufacturing comes months after Ford put an end to its partnership with Mahindra & Mahindra, which would have allowed the former to launch cars at a lower cost, albeit ceasing its independent operations in the country.

The sale of all the current Ford models will be discontinued in the country once the existing inventories are sold off. Having said that, the auto giant will continue to sell some of the iconic models — including Mustang coupe and Mustang Mach-E — in India through imports and keep offering after-market parts, maintenance facilities, and warranty support to the existing owners. Meanwhile, the company will also expand its Business Solutions team in India (consisting of 11,000 employees), which focuses on R&D and software development. Ford currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.