In 1991, the economy was liberalized, the government welcomed investors and the middle class was expected to fuel a consumption frenzy. Arguably, rising disposable income would help foreign carmakers to gain a market share of as much as 10%, forecasters said.
Last week, Ford took a $2 billion hit https: reut.rs 3 nFLvnF to stop car manufacturing in India following compatriots General Motors Co and Harley-Davidson Inc in closing factories in the country.
Among foreigners that remain, Japan's Nissan Motor Co Ltd and even Germany’s Volkswagen AG - world's biggest automaker by sales - each hold less than 1% of a car market forecast once to be the third-largest by 2020, after China and the United States with annual sales of 5 million.
Instead, sales have stagnated to about 3 million cars. The growth rate of the last decade has slowed to 3.6%, versus 12% a decade earlier.
Ford's retreat marks the end of an Indian dream for U.S. carmakers. It follows its exit from Brazil announced in January https: Reut.rs 39 fUnrq, reflecting an industry pivot from emerging markets to what is also widely seen as the make-or-break investment in electric vehicles.
Analysts and executives said foreigners had severely misjudged India's potential and underestimated the complexities of operating in a vast country that rewards domestic procurement.
Many failed to adapt to a preference for inexpensive and cheap cars that could bump over uneven road without needing expensive repairs. Lower tax on small cars also made it harder for manufacturers of bigger cars for Western markets to compete with small-car specialists such as Japan's Suzuki Motor Corp, controlling shareholder of Maruti Suzuki India Ltd, India's biggest carmaker by sales.
Of foreign carmakers that have invested in India over the past 25 years, analysts said only South Korea's Hyundai Motor Co stands out as a success, mostly due to its wide range of small cars and a grasp of what Indian buyers want.
Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up, but the government failed to create that kind of environment and infrastructure, said Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for auto industry.
Some of the Ford missteps can be traced to when it drove along in India in the mid 1990 s with Hyundai. Whereas Hyundai with the affordable Santro Ford entered with the Escort saloon, was first introduced in Europe in the 1960 s.
The Escort price shocked India's used to Maruti Suzuki's more affordable prices, said former Ford India executive Vinay Piparsania.
Ford's small product range also made it hard to capitalise on the appeal engendered by its best-selling EcoSport and Endeavour SUVs said analyst Ammar Master at LMC.
The car maker said it had considered bringing more models to India but determined that it could not do so profitably.
The struggle for many global brands has always met India's price point because they brought globally products that were designed at a high-cost structure for mature markets, said Master.
A particularity of the Indian market came with a lower tax rate in mid 2000 for cars measuring less than 4 metres 13.12 ft in length. Which left Ford and rivals building sub- 4 metre saloons for India which ultimately disappointed sales.
U.S. manufacturers with small truck DNAs struggled to create a good and profitable vehicle. Nobody got the product quite right and losses piled up, said Bhatia of JATO.
Ford had excess capacity at its first India plant when it invested $1 billion on a second site in 2015. It had planned to make India an export base and increase its share of the market expected to hit 7 million cars a year in 2020 and 9 million by 2025.
But sales never followed and overall market growth stalled. Ford utilises only about 20% of its combined annual capacity of 440,000 cars.
To achieve its excess capacity, Ford planned to build compact cars for emerging markets in India but washed plans https: reut.rs 3 tMSnAs in 2016 amid a global consumer preference shift to SUVs.
It changed its cost structure : reut.rs 3 hFDY 4 c in 2018 and the following year started work on a joint venture https: reut.rs 3 zoxBsk with local provider Mahindra Mahindra Ltd designed to reduce costs. Three years later, in December the partners abandoned the idea https: reut.rs 3 tOcGxw.
After buying $2.5 billion from India and burning another $2 billion in India over the past decade alone, Ford decided not to invest more.
To continue investing we needed to show a path for a reasonable return on investment, Ford India chief Anurag Mehrotra told reporters last week.
Unfortunately, unfortunately, we are not able to do that.