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FORD INDIA: THE COMPACT SUV BET
Will Ford’s compact SUV trick work?
Alan Mulally, CEO of Ford, has a new job at hand in India. Revive Ford’s sales and increase market share. And he has chosen to lay out the totally-new-for-India compact SUV dish for starters.
Issue Date - 02/02/2012
 
It was Alan Mulally’s first field trip to an auto-testing facility, four months after he had joined the Ford Motor Company as its new CEO in September 2006. Mulally, had till then proven many-a-time to the Ford management and the world, why he was all about “gut-feel”. That morning of February 2007, he was out to prove the same. His Falcon single-aisle jet landed on the airstrip of a 330 acre facility in East Haddam in Connecticut. With him were two engineers from the company. Mulally spent 4 hours at the facility, gathering feedback about his company’s cars from third-party experts. One complaint that was thrown across to him was that the new Ford Edge SUV not only lacked an electronic opener, but also a handle on the rear hatch. His engineers put forward wise arguments why the company made what it made. Mulally’s gut told him otherwise. Today, the Ford Edge SUV not only comes with an electronic keypad enabled opener option, but also with a universal hatch door opener!

Mulally has never hesitated from taking steps that he has been completely convinced about. From pledging all of Ford’s assets in November 2006 (including the logo for $23.6 billion) to dumping famous brands (Volvo, Jaguar, Land Rover & Aston Martin), to postponing his plans to launch the new version of the record-selling F-Series in early 2009, this former Boeing veteran has never been bothered by the disgust-filled grunts of his board of management. He knows: rescue a company, only an autocratic leader can. He has.

Besides following his gut, and being authoritarian, there is a third dimension to Mulally’s character. That he is wisely unconventional. A year after he had taken over at the company, Mulally decided to place his bet on small cars, and in the year that followed burnt 61% of the company’s cash reserves in the process. Ford was by then considered a champion of the trucks and pick-up category, and spending more than half of the company’s resources on small cars was an act of self-humiliation for the Ford management. Mulally didn’t care. The result: Ford bounced back as the second-largest car seller in US and EU markets in 2009 and 2010 – thanks to its changed small car strategy. Call it unconventional, but this CEO taught a money-losing maker of gas-guzzling-trucks to focus more on small cars and make profits! Today, 48% of Ford’s global sales are accounted for by compact cars and in the 11 quarters since the start of 2009, has made profits totalling $15.88 billion.

Talking about small cars, we can’t miss Ford’s ‘very late’ entry in the Indian small car market. Despite being the second foreign carmaker to enter India, Ford became only the tenth to launch a small car in India. Experts believe that during the pre-Mulally days, not many in the Ford camp were convinced that the company should experiment with its image in India by trying to attempt a small car. Again, the gut told otherwise and you had the “Made in India” compact car unveiled in March 2010 by none other than Mulally himself! Understandably, the Figo was the first chapter of his “One Ford” strategy.

By the time FY2010-11 ended, small cars had become the tastiest dish in the Indian auto industry. During that period the small car segment experienced a 28.34% y-o-y rise in unit sales to touch 1,449,361 units. But in the first nine months of FY2011-12, the script had a shocking tale to tell about compact cars in India. During this period, high interest rates and an ever-increasing fuel price caused the sales in the small car category to fall to 590,721 – a fall of 4% y-o-y. But the mastermind behind the “One Ford” strategy saw an opportunity in this too.

 
First, there was the slump in the small car segment in the previous quarters. Second, the rise of the SUV1 (length <4400mm and price up to Rs.1.5 million) category in India. During April-December 2011, sales in the SUV1 segment rose phenomenally by 22.57% y-o-y – the highest amongst all categories. Third, indications by Ford’s market share. From what began as a journey 17 years back with a disaster called the Ford Escort, the company is today (as on December 31, 2011) the fifth-largest passenger car maker in the country, with a market share of 4.67%. But talk about the overall passenger vehicle market (which includes the SUV segment), and Ford’s rank slips three places to eighth (share of 3.68%), just ahead of the four-year-old in India Volkswagen, a crippled-without-diesel-technology Honda SIEL, and the late-mover in the small car and SUV market SkodaAuto India. What this clearly indicated to Mulally was a clear opportunity to achieve a growth in sales volume for Ford in the country by riding the rising ‘demand’ wave of compact SUVs. The quick-to-act Mulally wanted to make a swift move to strengthen Ford’s weakening grip on the overall passenger vehicles market in the country. It happened at the Auto Expo 2012. [Wonder why Mulally was the only Global CEO of any foreign automaker at the Expo this year?]

To achieve his purpose, Mulally launched a reworked version of its EcoSport SUV. And even the pricing of the EcoSport – estimated to fall between Rs.0.6-0.9 million, as per industry watchers – could make the model an attractive catch in the segment.

But Mulally is only human. His new SUV bet on India is fuelled by a concern too. Not only is the compact category behaving in a manner unwanted, Ford is currently struggling to maintain its sales growth in the country for various reasons, and across segments. First, hatchbacks. Competition in the hatchback segment has only heated up since the entry of Figo. In the past fifteen months, the count of compact models in the Indian market has increased by 27.3% to 28. As for sales of the Figo, though the reaction to the launch was extremely encouraging in the first 12 months post-launch (it sold 78,000 units in FY2010-11), competition has only been rough on it in recent months. Its sales fell by 7.66% y-o-y to 48,925 units during April-December 2011. Second, the mid-sized segment. Amidst launches like the new Maruti SX4 diesel, Hyundai Fluidic Verna & Volkswagen Vento, the new-generation Fiesta from Ford’s stable failed to make the desired impact because it was priced higher. Third, during the same period, when unit sales in the SUV4 segment grew by 11.88%, that of Ford Endeavour fell by 6.54%. Overall, Ford India’s growth fell y-o-y by 3.3% during the first nine months of FY2011-12 (selling 66,467 units) as compared to the positive 0.5% growth recorded by the passenger vehicle segment in India (1,804,000 units). Therefore, Mulally hopes that the compact SUV (built on Ford’s B-platform, the product will carry a new 1.0-litre, three-cylinder, and a direct-injection turbo-petrol motor under the hood, and which will be manufactured at its Chennai plant) will prove a quick revival dose for the company’s sales in FY2012-13. “We believe the compact SUV will create a new segment in India, as it has the flexibility of an SUV with the fuel efficiency that the modern consumer is looking for,” says Alan Mulally, President & CEO, Ford Motor Company, to B&E.

          

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