Ford’s big dreams

MAY 2007, AS HE DROVE down Henry Ford Road in a Chennai suburb on his first recce mission, Michael Boneham, the just-appointed executive director, operations, Ford India, wondered if the name would be his company’s most enduring contribution to Indian roads. Henry Ford is a two-lane road, perpendicular to National Highway 45, which leads to Ford India’s Maraimalai Nagar factory. In the 12 years it had been in the country, Ford India had not exactly set the domestic car market ablaze: It commanded a mere 2.7% share with exactly one success—the Ikon, launched in 1999.

One of the reasons for the American car maker’s performance was that it had stayed away from the compact-car segment, a slice of the market that contributes to over 70% of India’s annual car sales. Boneham had been flown in to Ford India in 2007 to set up a project codenamed B517. This was the genesis of the Figo, Ford India’s runaway success in the compact-car segment. Launched in March 2010, the Figo (a hatchback with two engine options—1,196 cc or 1,399 cc) found 1 lakh buyers in just 15 months, and increased Ford’s share of the passenger car market to 4% from 2.5% a decade ago. Figo made Ford the country’s fourth-largest seller of compacts, after Maruti Suzuki, the leader with a 56% share, followed by Hyundai and Tata Motors who have been selling compacts for at least a decade. The Figo line in Maraimalai Nagar is churning out cars as fast as they are driven away from dealerships. “When we started, it was a single shift. Last July, we moved to two shifts,” says Tom Chackalackal, executive director-manufacturing, Ford India.

Boneham, now Ford India’s president and managing director says, “This segment is the most competitive anywhere in the world.” The margins here are thin and there’s tremendous focus on costs. His track record indicates how Ford is thinking. As manufacturing director for the Asia-Pacific and Africa region out of Thailand, he was instrumental in expanding Ford operations across the region, which included managing the Ford Production System, ensuring quality standards, etc. He had also held senior positions such as general manager of vehicle operations at Land Rover in Britain, and plant manager of Auto Alliance International, a Ford-Mazda joint venture production facility in Michigan. But his sense of the Asia-Pacific region was vital to his India appointment.

And now the question among suppliers, dealers, and the market is: Will Ford be able to harness the momentum created by the Figo?

Boneham’s response: “We didn’t pay the attention that the Indian market deserved—I am being very honest here—but we got very serious once we realised what we needed to do to be a real player.”

Soon after the Figo launch, Ford International announced that it was setting up a new factory in Sanand, Gujarat, for $1 billion (Rs 4,595 crore); another $72 million is being ploughed into expanding the Maraimalai Nagar factory. That’s nearly double the $870 million that Ford has invested up to January 2008. By 2015, it plans on making 4.4 lakh cars a year, from 2 lakh today. Then, to capitalise on the buzz created by the Figo, Ford is planning to launch eight new models over the next four years, of which at least two are likely to be compacts. One of the new models, the ‘all new’ Fiesta, was launched in April 2011.

Will it succeed? Ford’s track record has been patchy. When the Ikon was launched, it was a hit, and 1.45 lakh cars were sold till it was phased out in 2010. Sure, similar cars from Maruti and Hyundai have sold more, but till the Figo came along, the Ikon was Ford’s most successful car. Buoyed by that, Ford launched the Endeavour SUV in late 2003, and the Fusion, a cross-over, in 2004. The following October, Ford’s global chairman and CEO, William Clay Ford, Jr., came to India to launch the Fiesta.

None of these cars lived up to the expectations set by Ikon. The Fusion flopped (too expensive), the Fiesta didn’t make much of a dent and the Endeavour was pricey, and launched way before the 4x4 and SUV market picked up.

The former India head of a U.S. auto supplier who has worked with Ford, General Motors, and Chrysler, believes auto makers can’t afford to be one-car wonders here. The perception of buyers is determined by the range of cars on the road. “Car companies must have that kind of ammo to grow in India; you have to keep firing at the market,” he says, adding: “Every new model must sustain and build on the advantage created by its predecessor.”

That’s been Maruti’s tactic—expanding its basic Alto model with the K-Series engine, apart from a diverse portfolio of compacts—the WagonR, Zen Estilo, Swift, Ritz, and A-Star. Volkswagen too thrives on its presence across categories, Polo (compacts), Vento (basic sedan), and Jetta (executive sedan), ascending to premium and luxury with the Passat and Phaeton. Toyota Kirloskar Motor has piled one successful model upon another—Qualis, Innova, Corolla, etc.

Asked why Ford cars did so badly in the past decade, the former global supplier says that “there was nobody rich enough in the Indian middle class who could afford most of its sedans”. He adds that it was difficult for any Ford India head to bring investments or a car model specific to India, when the market wasn’t large by European or American standards.

THINGS MAY BE DIFFERENT now. “The Detroit Three (GM, Ford, Chrysler), along with Volkswagen and Toyota, were not excited about the small car until some years ago,” says Abdul Majeed, executive director at PricewaterhouseCoopers India (PwC), who heads the consultancy’s automotive practice. “When recession hit the developed countries, small cars became popular because of Hyundai and Kia. In future, buyers there will also be more environment conscious and small cars are seen as fuel efficient.”

This shift will make it easier for Ford India to get money and technology from Ford International. India might not be balance sheet-altering for Ford globally, but the country’s small-car potential is plainly evident. Ford’s attitude has also changed thanks to Alan Mulally, its global CEO since 2006. His goal is to expand global production of small cars (up to 65% by 2020), and increase the Asia and Africa share of Ford sales to nearly 35%. “We expect that by the end of the decade, one out of every three Ford vehicles sold globally will be to customers in the Asia-Pacific and Africa regions,” said Mulally over e-mail. Last year, one of every seven Ford vehicles was sold in this region.

India ranked second by volume in this region, after China, from being the fifth in 2009.

“India is one of the most competitive automotive markets in the world. Serving our Indian customers will enable Ford to grow, be a strong business and, in turn, continue to serve even more customers with the very best vehicles in the years to come,” wrote Mulally.

Nearly 2 million cars were sold in India in the 12 months ending April 2011. Market research firm J.D. Power estimates this will grow to 9.3 million by 2020. “These are buyers who will graduate from two-wheelers to small cars,” says Majeed.

Asked how Ford plans to capitalise on the momentum created by the Figo’s success, most Ford India execs say the answer lies in Mulally’s One Ford concept. It envisages six product development centres across the world— the U.S., Brazil, China, Australia, Germany, and Britain—working together on car platforms. It’s the manufacturing equivalent of the tech cloud, where each centre knows what’s going on at the others. These platforms will then be localised, based on specific inputs from the different countries Ford is in. Individual countries will not invest in product development; their focus will be on saving time and costs.

What does this mean to India? Since the country is not a huge contributor to Ford’s global revenues, it makes little sense for Ford (or any other car maker in its position) to invest in a product development centre here, based on anticipated growth. Boneham’s team based the Figo on the new Fiesta compact-car design (from Ford Europe); the eight follow-up models planned to reinforce Ford’s presence in India will also be based on global car platforms.

“As Ford designs new products on the One Ford global platform, we are developing them with the intent to sell them in markets such as China, India, and the Asean countries,” says Joe Hinrichs, Boneham’s boss and president, Asia-Pacific and Africa. “We can now have more new products from the global platform in this region.”

Not everyone is as optimistic. “While I do not wish to comment on Ford’s specific strategy, whether to do a single platform for all markets is a question that, I believe, has no right or wrong answer,” says Pawan Goenka, president, automotive and farm equipment, Mahindra & Mahindra, who began his career in Detroit with General Motors. The Mahindra Group was Ford’s partner in India until 1998, and instrumental in aiding the American car maker to set up its Chennai production plant. “Clearly, having a single platform is very beneficial to economies of scale, but this may affect the requirements of individual markets. More and more auto makers are finding ways of having the best of both, where the platform remains largely the same but has enough flexibility to meet the specific requirements of a market,” he adds.

Others fear Ford could appear less local in markets such as India. “Ford would have to come out of its ‘One Ford’ model to be competitive in India,” says Amit Kasat, an auto analyst with brokerage Standard Chartered Securities, who tracks listed auto makers in India. “If it aims to become a mass-market player in India, it has to launch products that would be suitable for the average Indian consumer.”

Ford believes the savings on development can help it price a car cheaper. And there are enough ways for the local subsidiary to adapt a product for its market. Boneham says there’s a full team that reviews market feedback, month on month, looking “at trends”.

Take Figo’s diesel variant as a case in point. Ford had decided on its mix of engines early: 55% petrol and 45% diesel. But then, it anticipated the upswing in petrol prices and was able to quickly alter the ratio in diesel’s favour. Boneham says now its 70% diesel and 30% petrol—and there’s still a waiting list for diesel cars.

FORD’S GOAL IN THE ASIA-PACIFIC region is to be in the top three just like it is in Europe, the U.S., and South America, says Boneham. India and China are crucial
to this.

“Most of Ford’s investments in China and India support our growth plans in the region,” says Hinrichs. “We export Figo out of Chennai, and a very important part of the programme is that, eventually, Figo will be exported to 50 markets around the world.” That’ll make Ford the fourth company after Maruti, Hyundai, and Nissan to use India as a base for exporting small cars to emerging markets.

It’s not just making more cars that will keep Ford ahead of its peers. The company is trying to give the customer what he wants in a car. And the first step is to identify the customer. Internally, the Ford team calls their target buyer Sandeep. “Sandeep is a young man, recently married; head in the clouds but feet on the ground,” says Boneham. “He’s ambitious. He needs to support his wife, though they both may be working. He is living with his family. He has responsibilities now, and is no longer racing around with his friends.”

Sandeep, adds Boneham, is not looking for cheap; what he wants is value for money. “That was a big learning for us,” he says. To give Sandeep what he wants, Ford India relies on its executive director for new projects, Sandip Sanyal (who insists that the similarity with the target buyer’s name is purely coincidental). He was one of Ford India’s earliest hires, coming to the American car maker in 1996 after a stint at Maruti Udyog (now Maruti Suzuki).

One of Maruti’s legendary secrets has been how it negotiates with suppliers to cut cost of production and enhance margins. Sanyal (who was operations chief when the Figo was launched) is a master of that science—something Boneham admits he envies. “Sandip’s understanding of the supply base, and his tough negotiating skills help us considerably; he has been the godfather of getting all that done.” By 1999, Ford India found that it could localise (instead of importing) content and parts up to 73%; today, 80% to 85% of a car is localised. This significantly reduces the final price of a Ford.

Boneham likes to cite the example of the Figo’s doors. “The front doors have outer and inner skins,” he says. “In India, accidents are quite common. Now, if somebody bumps into your car from the side and creates a dent,
you don’t have to replace the entire door. You can just replace the outer skin.” So, a Figo owner effectively pays half the price he would otherwise have to shell out to replace the door.

This kind of innovation helps reduce the cost of ownership, or the price of running and maintaining a car. Till Ford began localising components, its cars were among the most expensive to maintain. Spares often had to be imported, and took weeks to arrive. This affected Ford’s reputation. “The older models of Ford have not had good support from its dealers,” says an owner of a Hyderabad-based multi-brand car servicing network, who did not wish to be named. “They never supported the Ikon. Toyota has the best reputation; we get fewer Toyotas to service because its dealerships are terrific at servicing their cars.”

To ensure that Figo buyers (and future customers) don’t suffer the same fate as Ikon owners, Ford has tried to ensure that there are three servicing locations for every two new sales outlets. It has become a priority in the selection of new franchises.

Ford has 190 outlets and expects to cross the 200 mark by December 2011. Two of every three Ford sales outlets also have servicing and spare-parts facilities. This is in line with the industry benchmark for auto makers with less than 200 outlets, says Majeed of PwC. Hyundai, the fastest-growing car maker in the liberalised auto industry in India, has a 328-strong dealer network, and 696 service points across India, making it a 1:2 ratio.

FORD’S OTHER MORE visible effort here is its marketing push. The Ford brass unanimously agrees that the best person to explain this is Nigel Wark, Ford India’s executive director for marketing, sales, and services. The 57-year-old often travels along potholed roads in a Ford Endeavour to Tier-II cities that the Figo has opened in the past 18 months, but when he rushes into a Delhi Ford showroom to meet us, he has just left a Google India event, where he has spoken about Ford’s digital marketing approach to selling Figo. At the same event, Google announced that according to its findings, auto in India is growing faster than key industries such as travel, consumer electronics, and finance. According to the company’s search engine analytics, the Figo was the second most popular search term for car launches; the most popular was Maruti’s Alto K10, which doesn’t compete with the Figo.

This was the first time Ford was sharing the spotlight with market leader Maruti Suzuki. A large part of this victory was because of the company’s aggressive digital marketing. A Ford survey shows that the under-35 age group accounts for 40% of the 1 lakh Figo buyers. This is the segment Wark aimed at with his digital campaign. Also, he hopes that the 26 years to 35 years age group may graduate to other Ford labels as they grow older and more prosperous.

Wark is a relatively recent convert to the digital world. He was at a Ford showroom in Chennai in March 2010, soon after the Figo was launched, and was amazed to find some 200 people in the showroom at the same time, all interested in the new car. “We had to issue token numbers to organise these people who wanted to try the Figo,” recalls Ramesh Babu, a salesman at the MPL Ford showroom, near Anna Salai, Chennai. Wark didn’t want potential customers to be turned away by the prospect of a long wait, so he prodded his marketing team to do something to speed up the process.

The result was the introduction of SMS- and Internet-enabled appointments for demos and test drives. “We are going to have more demonstrators and teams, rather than everything at the dealerships,” he says. Almost 10,000 of the first 1 lakh Figo cars sold were based on SMS- and digital-enabled test drives.

“Historically, digital or below-the-line marketing has been a small part of supporting what you do in print and broadcast media,” says Wark. “We want digital to be equal to above-the-line marketing.” Ford is aggressive
on the Internet—savings on marketing costs could also help lower end-price and margins over time—to reach buyers directly.

Learning from the Figo’s success, Ford is marketing the new Fiesta less on traditional media and more on social media and offline promotions focussing on technology and gadgets (using an iPad to learn more about the Fiesta in mall spaces called Fiesta Cafés). “The wonderful thing about social media is that when you do something wrong, the message spreads to thousands of people—not 10 or 11. Equally, when you get it right, they tell thousands of people on blogs and Facebook. That is multiplying the power of getting it right,” says Wark. The target customer for the Fiesta, named Ajay, is a little older than the typical Figo buyer—Sandeep’s older, successful brother, perhaps. Wark is planning a series of events, online and off, to allow this category to interact with the new car.

COMPETITORS, INCLUDING MARUTI, have responded to Ford’s challenge; Maruti has announced a new Swift platform with more features and diesel variants. “Finally, the product is what will matter,” says PwC’s Majeed. While Volkswagen has the design, car portfolio, and ambition, equity analysts still favour India’s Big Three—Maruti, Hyundai, and Tata Motors—because of their better pricing and range.

In the second division, GM has two small cars and has grown steadily at 11% since fiscal year 2006 in India. Honda has lost 1% in the same period, with no small car yet. In this backdrop, it’s Ford and Toyota’s product portfolio that will see them locking horns. Ford’s marketing may make all the difference.

“The challenge that most passenger car companies in India, other than the top three, are facing is that of scale; the market is too fragmented,” says Goenka. The top three enjoy a cumulative 75% market share, and the remaining 25% is shared between 14 companies. “I do believe that an auto maker in India needs a minimum volume of about 150,000 to have good reach.”

When Boneham drove down Henry Ford Road four years ago, he knew that Ford India needed a compact car in its portfolio. The Figo more than filled that need and brought Ford back into the reckoning. The new Fiesta sedan has already been launched. What Boneham does from here on is what Ford will be remembered for.