NEW
DELHI/DETROIT: Ford Motor Co has shelved plans to produce a new compact car
family designed mainly for emerging markets like India and China, industry
sources said, reflecting disappointing sales of mainstream models in the
world's fastest growing car markets.
India and China were expected to be the main
manufacturing hubs for the new B500 range, slated to begin production in 2018
and to include a premium sedan, hatchback and sport utility vehicle (SUV), two
sources with direct knowledge of Ford's plans told Reuters.
The automaker
had also planned to build its new models in Brazil, Russia and Thailand, one of
the sources said.
Ford's
decision, communicated to its suppliers in July, follows a similar move by General
Motors to postpone the launch in India and China of a new $5 billion family of
compact vehicles, said two sources familiar with GM'S thinking.
Ford's
programme is on ice because of muted demand for some of its small and mid-sized
hatchbacks and sedans in India and China, where SUVs and "crossovers"
combining the hatchback and SUV have proved increasingly popular.
The cost of
upgrading plants to produce the new cars would also be prohibitively high, the
sources following Ford said.
All of the
sources declined to be named as they have not been cleared to discuss the plans
publicly.
Ford
declined to comment on the development.
"We are
constantly evaluating opportunities to better meet the needs of consumers and
do not comment on speculation about future product programmes," a Ford
spokesman said in a statement.
SHIFT TO SUVS
That said,
Ford has invested over $2 billion in India and plans to spend more to set up a
global engineering centre in the southern city of Chennai that will help tweak
products for the local market and more swiftly adapt to changing consumer
trends.
The carmaker
is also ramping up exports, including to Europe, to maximise usage of its two
plants in India.
"India is a key market for us in Asia
Pacific," said the spokesman, adding that the carmaker is committed to
introducing new products and technologies in the South Asian nation.
But instead
of the more ambitious plan for the key markets of India and China, Ford will
focus on updating existing models and develop and build more SUVs and
crossovers, moving away from sedans and hatchbacks, according to two separate
US sources with knowledge of the company's plans.
That would
allow the carmaker to boost profit margins.
"The
global shift to crossovers makes competing in small cars a tough proposition
for GM and Ford," said Sam Fiorani, vice president of global vehicle
forecasting at US-based AutoForecast Solutions.
"It
makes more sense for them to refresh older products now, harness lower
development costs in China in the mid-term, and move toward small crossovers
over the long haul."
Chinese
buyers have flocked to SUVs, as they grow wealthier and are often restricted to
one vehicle in major cities, at the expense of contracting sedan sales.
SUV sales
rose 52 per cent last year, although a glut of new model launches in the
segment is already leading to discounts and lower margins.
Growing
competition in the small SUV segment from local Chinese carmakers is also
putting more pressure on pricing.
SETBACK FOR "MAKE IN INDIA"
The retreat
by Ford and GM is a setback for India's "Make in India" push to
become a global manufacturing powerhouse, including in the auto sector.
Retooling
the assembly line to build the B500 vehicles at Ford's plant in Gujarat, Prime
Minister Narendra Modi's home state, would have meant an investment of more
than $100 million and created manufacturing jobs as it cranked out more cars.
Ford and GM
have struggled to crack emerging markets in Asia, where competition from
Japanese, South Korean and now Chinese automakers is fierce.
GM shut
production in Indonesia owing to its modest market share, and Ford also plans
to close its operations in the Southeast Asian nation, as well as in Japan and
Australia.
Dearborn-based
Ford is now looking at each country in the region in terms of long-term
profitability opportunities, said another source familiar with Ford's plans,
while noting India remains a tough place to make money.
India's
passenger car market, where sales rose 7 per cent last fiscal year to 2.8
million units, is dominated by Maruti Suzuki and Hyundai Motor Co with their
extensive line-up of cars and vast dealer networks.
Maruti and
Hyundai control two-thirds of the market whereas Ford's share in India, set to
be the world's third-largest car market by 2020, has stagnated at about 3 per
cent.
Until Ford
finalises an alternative plan, the shift in strategy could leave gaps in its
car portfolio in India, that today sits at the two ends of the price and size spectrum.
In the
meantime, Ford is increasing its focus on driving down costs by sourcing more
parts locally and using more common features across models to achieve economies
of scale.
Source: Ford
shelves compact car programme for emerging markets, setback for India