Ford Failing in India to Buoy Market Share as Figo Deliveries Slump: Cars

Ford Motor Co. (F) tripled sales in India with the introduction of the $8,400 Figo hatchback last year. Demand for the entry-level model is now slumping and the company is counting on persuading customers to buy a car that may cost twice as much.

Deliveries of the Figo, which makes up about 80 percent of the carmaker’s sales in India, dropped for a second straight month in May, hurt by higher interest rates and fuel costs. To return to growth in the second half, Ford plans to introduce a new Fiesta subcompact model that will cost around 700,000 rupees ($16,000), according to IHS Automotive.

Ford is seeking to broaden its appeal beyond the Figo and woo ‘Ajay’ - its moniker for young aspirational buyers - as industry car sales grew last month at the slowest pace in two years. Hyundai Motor Co. and Maruti Suzuki India Ltd. (MSIL) dominate the market for mid-size cars with a combined 44 percent share.

“The Figo has been Ford’s first and only success in India,” said Deepesh Rathore, the New Delhi based-managing director of IHS Automotive in India. “In the Fiesta segment, the competition is tougher as the customer is more evolved.”

The Reserve Bank of India has raised interest rates 10 times since the start of 2010 to rein in inflation, driving down demand for cars in a country where 80 percent of all purchases are funded by loans.

Photographer: Prashanth Vishwanathan/Bloomberg

Ford Motor Co. employees check Figo model cars rolling out of the company's factory assembly line on the outskirts of Chennai, India. Close

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Photographer: Prashanth Vishwanathan/Bloomberg

Ford Motor Co. employees check Figo model cars rolling out of the company's factory assembly line on the outskirts of Chennai, India.

Delaying Purchases

Customers are delaying purchases and more buyers are opting for diesel models, leading to a mismatch in supply, according to Michael Boneham, managing director and president of the Dearborn, Michigan-based carmaker’s India unit.

“There’s definitely a slowdown in the buying decisions of people,” Boneham said in a June 2 interview in New Delhi. “It’s the final decision to put the money down.” He declined to comment on the price of the new Fiesta model.

Ford’s India passenger-car sales fell 12 percent to 6,874 units in May from a year earlier, accelerating from a 1.7 percent drop in April, according to data from the Society of Indian Automobile Manufacturers. That compares with a 7 percent gain in industrywide car sales to 158,817 last month, the slowest pace of growth since May 2009. The numbers exclude sales of sport-utility vehicles.

Figo Sales

Starting at 376,985 rupees in Mumbai, the 1.2-liter Figo helped almost triple deliveries to 95,395 in the year ended March 31, 2011. That ranked Ford behind Maruti, Hyundai and Tata Motors Co. in passenger car sales, according to data by the manufacturers group.

Sales have since slowed. Ford sold 5,608 Figo units in May, 11 percent fewer than a year earlier. April deliveries dropped to 6,013 from 6,030 a year earlier, manufacturers group data show.

Ford spent two and a half years fine-tuning the Figo before introducing it in India, Boneham said. The automaker added wireless Bluetooth technology to connect mobile phones to the car stereo after gathering feedback from its target customers, he said. Low-priced after-sales service also helped attract cost-conscious shoppers, typically first-time buyers dubbed ‘Sandeep’ by Ford.

The carmaker increased the number of outlets in India to 170 from 120 in two years, and trained the sales staff to provide detailed comparisons on fuel economy and servicing costs to potential buyers, Boneham said.

‘Niche Player’

Ford identified the Indian market for strong growth four years ago when automobile sales in its biggest market began to slump as the United States went into recession, according to Boneham. Before that, Ford was “at best an interesting niche player” in the south Asian nation, he said.

“The Figo is a comeback for Ford in India, allowing it to compete in the volumes-driven small car segment,” said Ammar Master, an analyst with J.D. Power & Associates in Bangkok. For Ford to do well in the higher-end segments, “pricing will be key,” he said.

Hyundai introduced its new 1.4 and 1.6-liter petrol and diesel-run Verna on May 11. The sedan starts at 733,036 rupees in Mumbai and the smaller-engine petrol variant travels 17.4 kilometers per liter, according to the company. That compares with 17 kilometers for the Fiesta’s petrol model, according to the Automotive Research Association of India.

Honda Motors cut the price for its City sedan by 8.1 percent to 749,000 rupees in New Delhi, the company said in a June 14 statement, a move that IHS’s Rathore attributes to increased competition.

“It’s going to be challenging for Ford,” said Ashvin Chotai, the London based-managing director of Intelligence Automotive Asia, an industry consultant. “There’re some formidable players in the segment.”

Ford’s Boneham says the automaker will continue its focus on going down the “value-for-money route.” Of the 8 new models planned for the Indian market by 2015, the majority will be in the small- and mid-sized categories, he said.

“It’s important to be in more segments,” he said. “All the time, there will be Sandeeps coming up and we want to convert them into Ajays.”

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net

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