Since it set up a production base at Maraimalai Nagar near Chennai in 1995, Ford Motor Company has come a long way. Having discovered India, Ford has gone in for a $2 billion expansion which includes the setting of a Greenfield project at Sanand in Gujarat. President and Managing Director of Ford India Michael Boneham speaks his mind on a range of issues. Excerpts:
How is the recent diesel hike panning out for you?
SIAM has put a position on this, and we are consistent with its view that the subsidy needs to be addressed over time. Subsidy was probably, and still is, unsustainable for this economy. In terms of the automotive impact, it’s still early days. However, there is still a big differential between diesel and petrol, almost Rs.20 (a litre), depending on which State one talks about. I wouldn’t expect that there will be any significant swing back to petrol cars at this point. At Ford, we are ready in terms of switching between petrol and diesel vehicles. We have got flexibility in our manufacturing operations. We now have increased flexibility in our engine plants. You have to be responsive, and can’t try and push down the consumers’ throats what you have.
SIAM also wants a stable fuel policy...
There is still a significant subsidy. We think it is more sensible from a market perspective to look at what the free market is doing, and respond to that. However, you got to be sensitive to the needs of the agriculture and transport sectors. I don’t think it is the right thing to do to punish one industry, to put a tax on diesel vehicles. An 80,000 rupee increase on diesel cars right through would deliver about Rs.6,000 crore to the treasury, assuming that volumes stay the same. That equates to a Re.1 per litre increase. So, you would destroy the automotive industry in the short-term.
Will we still see an additional levy on diesel cars?
They could still do it. We are talking to the Finance ministry, giving them access to the data, and showing them why it wouldn’t be a smart idea. We want manufacturing to be a part of the growth story in India. Automotive is 22 per cent contribution to India’s manufacturing-GDP ratio. It is also a major employer. It’s a massive opportunity for this country, and manufacturing must be a key part of its strategic plan and diversification of industry. Surely, you wouldn’t want to be imposing significant taxes.
What do you require (as a company) to thrive?
I think we need transparency in policy. We can’t have sudden taxes on diesel cars. We need consumer sentiment to pick up. Consumer sentiment at this point is just a psychological thing, almost like a wall of worry. At the moment, this wall is bigger than optimism. It works just like a stock market situation. Positive mind-set is necessary, and, globally, we have to see Europe pick up. And that will help India and other countries.
Even if SIAM has taken its projections down, there is still growth of 8 to10 per cent. Since we had 30 per cent two years ago, it looks bad. What you have to remember is that this type of growth is not sustainable. You probably need about 12-15 per cent to be sustainable, and focus on employment and further generating additional volumes and so on. I think we are very confident. This industry will be five million (passenger and commercial vehicles) by 2015, and nine million by 2020, barring any major global disruption. That is a significant growth. Even with these short-term issues, we are about 3.5 million passenger and commercial vehicles.
Has the focus towards localisation helped? What is your strategy to keep costs down?
If we hadn’t done that amount localisation, we would have been suffering due to 20 per cent devaluation of the rupee. Our strategy is for high levels of localisation – on high volumes of products – in the 80-85 per cent range, and a domestic and export strategy for both vehicles and engines. The export strategy provides a nice hedge for us. So, we have more flexibility to respond to what is going on globally. And, we are growing our portfolio – that is still on track. Overall, we are going through short-term difficulties, which are mainly due to the cyclical nature of the industry. In the medium-to-long-term, we are confident that we are going to continue to invest here.
What can we expect in terms of new product launches?
We have EcoSport. That should be out early next year. Most of our launches will be in the small-car category, mainly because that is where 70 per cent of all cars are sold. We don’t expect that mix to change in the future. This is because vast majority of people are graduating from two to four-wheelers as a result of GDP and PPP (purchasing power parity) improvements. The small SUV, EcoSport and MPV, all these launches will be small, and they will provide flexibility. That is a great thing for us from a ‘One Ford’ point of view, which is about us responding very quickly to changes and demand.
What is the current export mix? Which markets are doing well?
Our export will continue to be 20 per cent for vehicles and 40-45 per cent for engines. They are doing well in South Africa and Mexico, and also in Central and North African hubs. For engines, ASEAN is a big hub. The small fuel-efficient petrol/diesel car is good for that market.
How do you think the environment has changed since the time you came to India?
It has definitely improved. The growth has been there. In addition, our knowledge of the business environment has improved. We were not positioning ourselves appropriately in the past. We needed to learn our lesson, and we have. There are still a few things to be improved. The regulation environment could be improved. Highly complex paper-driven demands, for instance, is something that gets in the way. I would like to see GST come in, and take out all the complication in the taxation system.
There is a war for capital, globally. It will move from one country to the other depending on the environment that it sees is conducive to return. We have made a big bet on India, and will continue to do that as we are confident. Just like we do continuous benchmarking against competitors, I think the Indian government should also do so on an on-going basis.
Has the recent ‘Figo recall’ affected the company?
It has actually helped us. We identified an issue, and responded to it. Recalls are a part of the issue, and it would have been far worse off if we had tried to hide. Even though all of the vehicles were not impacted, we were checking everyone to make sure they were okay.
Where do you see Ford India in the future, in terms of market share?
In passenger and commercial vehicles, we are 3 per cent. And, we don’t compete in the commercial segment. So, if you take that out, we are about 8-10 per cent in market share. The customer defines the market share for you. You just have to deliver the products.
What has the Indian market taught you?
It’s all about the importance of scale and localisation to be competitive here in small cars. It’s about how important value for money is. I think the consumer here wants great value for money. They don’t want cheap. There is a fundamental difference between the two. They will pay for what they see value for money. That is an equation you have to keep right here in India. Cost of ownership is absolutely critical. It’s not just purchase price, it’s the lifetime experience with the vehicle that the India consumer looks for, which is far more than any other consumer globally. They are actually trend-leading in this one. My firm view is that if you can be successful here in the small-car segment, you can be successful anywhere in the world.
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