Consolidation and the future of the automotive industry: A major factor that shattered Ford’s growth dreams in India
New technologies and capabilities are driving various players in the Automotive market to innovate and challenge the competition. While consolidation or merger & acquisition is not something new, the sales fluctuations and uncertainty of survival have survival, have pushed the subsidiaries to change their business models lately.
Companies that adopt consolidation models expand and innovate, experience product improvement, enjoy better sales, and have more funds to deliver the market demands. The synergies of Fiat-Chrysler, Jaguar, and Land Rover’s acquisition by Tata Motors, and Toyota-Suzuki are world-known. But, the curious case of Ford in India explains that there are always two sides to a coin.
Understanding consolidation in the automotive industry
People usually think that consolidation means when one company acquires another or they merge. However, with time, consolidation took numerous forms in the automotive industry. Automobile giants, in the past, have come together for manufacturing joint ventures, cross supply of powertrains, for research and development purposes, and to share innovation platforms. To thrive in the global economy, companies are seeking new ways to reach their goals and pool better resources. They are collaborating and building strategic alliances, especially with artificial intelligence and data-driven startups.
Consolidation highlights companies’ desires to scale. The bigger and better the reach, the higher is their bargaining power and safety against uncertain sales seasons. It also helps in reducing the development costs, and reorganization of company policies, and allows them to adopt one another’s strengths and maximize their profits.
With the new challenging wave of Electronic Vehicles (EV) whose market is expected to grow at a rate of 94.4% between 2021-2030, consolidation models are bound to accelerate. Companies would aim to team up, exchange their respective strengths, and try to integrate EVs into their product portfolios.
Consolidation is not a cakewalk anymore: how did it becomes a major reason for Ford’s shut down in India?
Ford Motor came to India in 1995 through a partnership with Mahindra. After 3 years, the company separated to establish its own identity, namely Ford Motor India. The company’s first Independent offering to Indian customers was the Ford Ikon Sedan.
In the past 10 years, the company has faced major operating losses accounting for more than $2 billion and around 0.8 billion dollar non-operating assets in 2019. Owing to this, Ford announced it would enter into an agreement again with Mahindra in 2019. Both companies came together to utilize their respective strengths on connected car solutions and power trains. The focus was the co-development of electric vehicles, compact SUVs, and telematic control units.
This collaboration, for the second time, was a necessity for Ford. But unfortunately, as fate would have it, by the end of 2020, the partnership was called off and both the companies parted their ways.
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