SANAND, India – On a baking-hot plain in western India, Ford began preparing the ground for one of its biggest investments in Asia, a $1 billion car assembly and engine plant designed to more than double its manufacturing capacity here.
As U.S. automakers get back on their feet after the global financial crisis, companies such as Ford and General Motors are looking for growth and investment opportunities worldwide. Few destinations appear more attractive than India.
We don’t get many chances to make an investment of this magnitude, said Joe Hinrichs, president of Ford Asia Pacific and Africa. It’s a bet on India’s future, and a bet on Ford’s future in the country and the region.
With the West’s economies sluggish and car markets there saturated, and with China’s explosive growth beginning to taper off, India offers a mouthwatering alternative.
Passenger car sales grew 137 percent in the past six years, but there are still only about 13 cars per 1,000 people in this country of 1.2 billion, compared with 35 or 40 in China and more than 800 in the United States.
India is the world’s sixth-largest car market and is expected to take third place behind China and the United States by the end of the decade, the management consulting firm McKinsey and Co. predicts.
This new focus on India has required a post-downturn realization that the old ways of doing business no longer guarantee success, said Michael Dunne, president of Dunne and Co., a investment advisory firm in Hong Kong specializing in Asia’s car markets.
In the past, U.S. carmakers tended to launch products in emerging markets that were successful in Europe and anticipate that customers will trade up to the higher price level, Dunne said.
That has worked in other car markets, but it didn’t work in India, which is quite price-sensitive. They have now realized, We’ve got to go to the market, we can’t wait for the market to come to us.’
That means smaller, cheaper cars and taking the battle to more-established Asian operators such as Toyota and Hyundai. It means adapting faster than ever before to rapidly changing tastes. But the potential rewards mean that this is a battle that American carmakers can no longer avoid.
A decade of breakneck economic growth and a fast-expanding middle class are bringing India close to a tipping point, when incomes in towns and smaller cities across the country reach the threshold at which car sales typically explode.
Car ownership in India, just like in China, is becoming an important status symbol for an aspiring middle class.
To take advantage, General Motors set up a car factory near the western city of Pune, close to Mumbai, in 2008 and is expanding its plant at Halol in Gujarat, just a few hours’ drive from the site of Ford’s new factory at Sanand.
It, too, is launching products for local tastes, such as the seven-seater Chevrolet Enjoy, aimed at bigger Indian families, and the Chevrolet Sail, both designed in China with the company’s joint-venture partner there.