As Automobile Industry Crisis Worsens; Ford Motors in talks to sell its One Billion Dollar Car Factory at Sanand in Gujarat

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Ford Motor is in early talks to sell its $1-billion factory at Sanand in Gujarat, Mint reports, quoting unidentified sources. The facility – the second of the auto major’s two plants in India – can produce 240,000 vehicles annually and builds the Aspire sedan and the Figo hatchback, mainly for exports. A company spokesperson denied the Sanand plant was on the block, calling the report “malicious but (sic) unfounded”. The automaker is undergoing a $11-billion reorganization in emerging markets that involves layoffs and plant sales. India’s auto sector has been in a slump since last July.

Ford India planning to sell Gujarat car plant due to low sales?

Cars are more expensive in India than in other very developed countries like the United States. To prove this hypothesis I took the price of the Toyota Corolla in the US and in India. Why the Toyota Corolla? Because it is one of the largest selling cars in the world. Which then by definition makes it a mass-market car. The US price of the Toyota Corolla is $ 20,430 ( 14.64 lacs ). The India price of the same car is Rs 16.45 lacs. ( both are base version prices ).

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Now to make that more real look at the per capita incomes of India and the US. The India per capita income is 7,060 PPP dollars (2017) while the US per capita income is 60,200 PPP dollars (2017). So while Indians earn 10 times less than the average American the Indians pay over 12% more for the same car. Does that seem fair?

Another Automobile giant crumbles in India’s Economic Slowdown. Ford in talks to sell it’s USD 1 Billion recently set up factory in Sanand.

According to the Niti Aayog, India has just 22 cars per 1,000 citizens. In comparison, in the US, 980 out of one thousand people own a car.

The plant currently has a low capacity utilization. Ford is considering to cease its solo operations in India and widen the scope of its partnership with Mahindra beyond platform and technology sharing. Such a move would help Ford continue to have a presence in India which is touted to be the third largest auto market in the world in foreseeable future without a high financial liability that comes with owning heavy assets likes manufacturing plants.

Industry didn’t see it because they didn’t want to see it. Euphoria is a market everyone wants to cash on till it lasts. Anyone walking on the streets 6 months post demonetization would have seen the difference in consumer behavior. But its difficult to be a “first mover” in a market of critics, as the chances of getting questioned and battered are high.

It is to be noted that credit ratings firm Moody’s recently downgraded Ford’s credit to junk citing the American automaker’s ‘business challenges and poor financial performance’ on a global scale. The struggling automaker must be looking at cutting costs and offloading poorly performing assets across the globe, and we think Sanand manufacturing facility qualifies as an offload-able asset.

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Considering that Ford’s Gujarat plant is modern and is conveniently located for export operations, it would be a good buy for any new or existing OEMs who are looking to kick start their operations in India. Will it pave way for yet another Chinese automaker to establish its presence in India just like how SAIC (MG Motor’s parent company) entered the scene by buying GM’s Halol plant?

When a Consumer cuts the consumption by 1x , it dents the GDP by 3x and the Exchequer bleeds at 5x . When an INR 5 biscuit pack can shake board room , how the Giffen goods can retain diminishing marginal utility forever.

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