Earlier this month, the automaker Ford announced its decision to close manufacturing operations in India, which at present are at Sanand in Gujarat and Maraimalai Nagar in Tamil Nadu. The decision sent what media has portrayed as ‘shockwaves’ given that the livelihood of several employees is at stake. In Chennai this will mean around 2,700 permanent employees and a few hundred contract staff will be thrown out of jobs. While that is no doubt regrettable, what cannot be denied is that this was bound to happen sooner or later, given the performance of the company in India. Also, what is surprising is that the reaction is wholly on predictable and rather outmoded lines – there is talk of inviting the Government to involve itself, the Union is protesting, and political parties are making hay, one way or the other. Elsewhere in the world, such a decision would have been taken as par for the course for a liberalised economy.
The re-entry of Ford into India, in collaboration with the Mahindras, was one of the highlights of the first wave of Indian liberalisation. For Tamil Nadu, and within it Chennai, it brought about many tailwinds – the existing automotive component industry received a boost and it also made the entry of Hyundai and several other companies a lot easier. The plant’s inauguration was a high-profile event and since then, the setting up of other facilities such as an engine plant or an R&D centre has always had the ruling Chief Minister in attendance. While Tamil Nadu did have other marquee names in the auto sector, Ford was considered special.
What was often forgotten in all this hype was that the company’s performance was always below par. Its best was in FY 2018/19 when it posted a profit of Rs 526 crores, which incidentally saw the company returning to the black after ten years. But even then, year on year sales of vehicles were dipping. The last successful model launched by Ford in the country was in 2013. Of course, the Indian plants also exported considerable numbers but that meant the company was subject to the vagaries of the international market. Globally Ford had embarked on cutting operations in what it defined as non-core markets (euphemism for being unable to withstand competition from Japanese and Korean automakers) and was withdrawing. It was but a question of time before it pondered over India. Accumulated losses of USD 2 billion would jolt any company into action. In any case, Ford is not alone. GM and Harley Davidson have also closed and moved on.
The impact of this decision will not be restricted to just those 2,700 jobs. An entire ecosystem comprising vendors, dealers and logistics operators is bound to be hit hard. The bitter reactions are therefore not out of place. But what is odd is the sudden call for governmental protection. We can either be a free-market economy or not. We cannot have the best of both worlds. If we rejoiced at the opening up of India in 1992, it also meant we were open to international pressures and business tactics. Closure of non-profitable operations happens to be a harsh but real necessity in enterprises. Gone are the days when a Standard Motors could chug along, producing vehicles in single digits each month, sustained by promises of governmental aid which never came by the way. That is if you don’t include behind-the-scenes arm twisting of industrialists to step in as white knights. A more recent instance was the closure of the Nokia plant which happened in 2014. Despite all the protests the shutdown went ahead as per plan and it was only in 2020 that operations resumed, after a takeover.
It is time Chennai woke up to such possibilities. While inviting businesses to a state remains very much a part of a government’s responsibilities, getting them to stay is not. That depends on the performance of the businesses. Ultimately it is the market which dictates who remains and who leaves.
Spot on Mr Sriram. We, Indians, more particularly those from Tamil Nadu, live in an imaginary bubble all the time. When ‘capitalist market economy’ thrives, we want not just a fair but large share of the cake. When the business goes kaput or even turns in that direction, our socialist cards are immediately on the table… protect the workers, protect the economy, pay them bonus, reduce working hours, build them liviing quarters, givem their children free eduction, given them medical facilities…..sorry. It doesn’t work. There is no law to prevent one from living in fool’s paradise all the time. Our folks are a living example. Having said that, no one is rejoicing at Ford plan closure but reality is reality – whether we like it or not.
Dear Nandbala — your blog spoting SriRam — in this momentous and shivering news of the Week — which appears to have met itself as –another rubbish of a news –best to push under ubiquitous carpet of fleeting mind of readers — brought me some consolations to note –that in the prevailing glee of corporate lifestyle — there are some “Nandbalas” — who can detect the coming of ” Last Days of Gumrah”. The Pavlovian Reflex of much touted Left parties — as servant and friends of “working Class” — would have bewildered Pavlov himself.
— nirmalyakumar majumder
Haha – “non-core markets (euphemism for being unable to withstand competition from Japanese and Korean automakers) “
Social justice demands that Ford should have been given reservation – out of 10 cars bought in TN, not less 6.9 cars should only be Ford. Further, in rural and semi-urban areas, this should be 8 cars out of 10. Moreover, driving license should not be insisted upon for those buying Ford cars since this will prevent under-priviledged and deprived classes from progressing ahead. Reverse gear in Ford cars should be removed since it should not be going backwards. That way the social justice bandwagon can power ahead to modernity, prosperity, egalatarianism and all-round welfare and ofcourse compete with the world’s best and be world-class.
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