Car sales have been declining in China, as we mentioned yesterday, but also in India.
As a solution to that problem, Ford signed a deal with Indian manufacturer Mahindra to transfer ownership of Ford’s local Indian assembly factories to a joint venture that its partner will run. Ford’s current restructuring efforts under new CEO Jim Hackett made this a relatively easy decision to make (ref WSJ). From April through August, 2019, passenger vehicle sales were about one-quarter lower than the same period last year and there are no indications that that situation will reverse anytime soon. One factor related to that situation has been the weakness of the nonbank lenders on which Indian car buyers, dealerships and small businesses rely to finance the purchase of vehicles. Infrastructure Leasing & Financial Services, a large shadow bank in India, went under a year ago, triggering a funding difficulty that hasn’t yet seen recovery. Another reason for faltering sales is the sharp vehicle price increases that have been instituted in an effort to recoup costs of stricter regulations that demand ABS brakes, air bags and seat belt warnings be standard features on all Indian cars. And, there will stricter emissions standards next year. India is a big market for car sales and offers strong growth potential But, gaining the local scale to make fair returns has proven a challenge. And, only a few East Asian small-car companies have actually figured out how to make that work – Suzuki being one of those. The company supplies one of every two cars sold in India and made a 9.6% operating margin through March. Thus, Ford’s decision to pool resources with Mahindra, #3 in sales in the Indian market, sounds like a very good idea. Part of the problem appears to have been the tendency for non-Indian manufacturers to ship in higher-cost global models, rather than making cars specifically for the Indian market. The arrangement with Mahindra will likely rectify that difficulty.
All the moving parts require that all parts of an organization move together.