Small is profitable

A comparison between them is inevitable. Both Ford and Hyundai came to India around the same time in late 1990s. They zeroed in on Tamil Nadu as their base and set up their manufacturing facility on the outskirts of Chennai.

Both of them began commercial production within months of each other. But the similarities end there. While Hyundai entered the market with a small car ‘Santro’, Ford introduced mid-sized Ikon. And the rest is history.

Hyundai Motor India, in the last eight years, has grown to become not only the second-largest car manufacturer in the country but also the small car hub for its Korean parent. It exports fully-built cars to over 100 countries from India. Not surprisingly, it began churning profits from the first full year of its operations (1999-2000) and has since expanded its capacity from 1.2 lakh units to 6 lakh units to meet the growing demand. For the fiscal 2006-07, the company sold 3,10,251 vehicles and registered a profit of Rs 466.74 crore on a turnover of Rs 9,119.35 crore.

Ford India, on the other hand, has accumulated losses of Rs 768.80 crore over the years. Though many of its products did well in the market, it just could not manage enough volumes to break even. Its exports, too, are restricted predominantly to South Africa, where Ikon is shipped as kits and Fiesta as completely built-up units. The company posted losses year after year till 2005-06. It was only in 2006-07 that Ford India finally managed to post its maiden profit of Rs 19.61 crore, backed by the strong performance of Fiesta—the mid-sized sedan it launched in 2005. The company sold 41,831 vehicles in 2006-07 and the turnover was Rs 2,722.33 crore. Not going the volume way was the sole differentiator in the performance of the two companies. Ford Motor Company (FMC), it appears, has realised its mistake more than eight years into its Indian operations.

Another realisation, too, came late—that Indian plant is capable of becoming a strategic manufacturing hub for Asia Pacific and Africa. It now plans to launch a small car in India and is investing $500 million to develop the product, set up a 2.50 lakh unit integrated engine manufacturing facility and double the assembly line capacity to 2 lakh units. The expanded capacity will go on stream in 2010. As a first step in this direction, Ford India commissioned its 60,000 units per annum diesel engine manufacturing facility last month.

Will Ford India suffer from the late mover disadvantage? “We took our time to identify the right product for the Indian market. But we have identified some opportunities in the small car segment that others haven’t.

The car, which will benefit from Ford’s global technology base, will be pretty special. It will blow the market away,’’ says Michael Boneham, the new Managing Director of Ford India, who must now turn the company into a profitable volume player. “We would not be spending so much of money if we are not sure that the product will succeed,’’ he adds.

While Ford is tightlipped about the features the car will sport, all that Boneham would reveal is that the car will be launched with 85-90 per cent local content and will be stunning in terms of style. The product specifications have been frozen and the car is currently under development in Australia. FMC’s annual reports in the past have had little mention of its Indian operations but that could change if Ford India gets its act right this time around.

—N. Madhavan