Ford Motor Co plans to build a $900 million production plant in India, doubling its investment in the country, as the US carmaker seeks to catch up with rivals in the second-fastest growing auto market in the world.
Foreign car makers have been ramping up investment in a price-conscious Indian market, where small cars are the biggest sellers and domestic operators have long dominated the market.
Ford's planned factory in Sanand, in the business-friendly state of Gujarat, will be running by 2014 and employ 5,000 people, it said. Tata Motorsmakes the Nano, billed as the world's cheapest car, in the same city.
"Lots of foreign players are only now realising what the India auto market offers them. Since the industry has evolved in the last 3-4 years, they are falling short of capacity and are now ramping up," said Vineet Hetamasaria, an auto analyst at PINC Research in Mumbai.
With initial annual capacity of 240,000 vehicles, the plant will bring Ford's total capacity in India to 600,000. It will reduce the cost of getting vehicles to domestic market and give the company access to west coast ports for exports. Ford has another plant in Chennai.
Foreign firms, most significantly South Korea's Hyundai Motor, the country's No. 2 seller, have been making inroads into the local market and are increasingly using India as a hub to make and export small cars.
Ford, which plans to raise the volume of its global sales by 50 per cent to about 8 million vehicles a year by the middle of the decade, began exporting its compact Figo model from India in August.
In the first six months of 2011, it sold more than 60,000 made-in-India units, including exports, more than 50 per cent higher than a year earlier. It's market share is around 5 per cent.
Car sales in India jumped 30 per cent in the year to March to close to 2 million. Sales growth has been nearly flat in recent months as higher fuel prices, rising interest rates and prices have dented demand, a slowdown that is widely seen to be temporary in an economy growing at about 8 per cent.
Earlier this month, the Society of Indian Automobile Manufacturers forecast that car sales this fiscal year would rise between 10 per cent and 12 per cent. It had previously forecast growth of 16-18 per cent.
"We don't see the fundamentals changing here in India and the rest of Asia, and that is that growth is going to be the order of the day," said Michael Boneham, Ford's India head.
Ford set up operations in India in 1995 and plans to launch eight new products in the country by 2015. It aims eventually to export the Figo to 50 international markets.
"Clearly, we're going to go after the volume, which is in the small car market," he said.
Choice & Competition
Rivals Toyota Motor Corp, Nissan Motor Co, Volkswagen and General Motors are rolling out new models and adding investment as they count increasingly on markets like China and India to offset sluggish growth in developed markets.
The Society of Indian Automobile Manufacturers expects investment in the sector of $12 billion to $15 billion by local and foreign manufacturers over the next few years.
While India has proven difficult to crack for foreign players in industries such as retail and power, it has proven welcoming to automakers, bringing competition and choice to a market where two decades ago buyers were mostly limited to a handful of dowdy local models.
The Indian passenger car market is dominated by Maruti Suzuki, which has about 45 per cent share of sales. It is followed by Hyundai, with 18 per cent, Tata with 13 per cent and Mahindra & Mahindra at around 6 per cent.
Toyota posted a 94 per cent rise in June sales in India, driven by its Etios sedan, which was launched last year. Nissan saw sales rise 21 times from a year earlier, with domestic sales at 1,632 cars and exports of 9,072.
On Wednesday, Toyota said it would spend 17.2 billion yen ($220 million) to boost capacity in India to 310,000 vehicles a year in 2013, in its second expansion announcement in as many months.
Ford, which also sells the Fiesta sedan in India, recently said it would invest $72 million to increase capacity at its engine assembly plant in Chennai, in Tamil Nadu.
Gujarat is a relatively prosperous coastal state to the north of Mumbai that aims to develop its auto industry. Tata Motors and GM have factories there and media reports say Maruti Suzuki might also locate a plant there.
Ford said the plant in Gujarat would help reduce logistical costs.
"It takes approximately up to 10 days to get our cars from Tamil Nadu to northern India. This will significantly reduce that time and the cost it entails," Boneham said.
As part of its plans to boost global sales, Ford is also building four plants in China, the world's biggest and fastest-growing major car market, and one in Thailand.
It posted net income of $2.4 billion in the second quarter and its shares fell to a 2011 low on Wednesday.