Ford India has confirmed a new facility in Gujarat that will lift its annual production capacity by 240,000 vehicles and 270,000 engines.

Ford has confirmed that it will set up a second plant in India, in the western state of Gujarat, with investment of about USD1 billion, in a bid to ramp up production to exploit the country's burgeoning car market, reports Dow Jones International News. Ford India will sign an agreement with the government of Gujarat later today (28 July) to acquire 460 acres of land for the proposed factory at Sanand, 40 km from Gujarat state's main city of Ahmedabad. Construction work on the new vehicle assembly and engine plant will begin this year, with the first vehicles and engines slated to roll off the assembly lines in 2014. "Coming out of the global financial crisis, Ford has emerged stronger. We have raised our focus on the Asia-Pacific, more so on India and China", said Joe Hinrichs, president and chief executive of Ford Asia-Pacific and Africa. Hinrichs added that the company will focus on meeting local demand with the new plant and may also look at exporting vehicles at a later date. The facility will have an initial annual capacity of 240,000 vehicles and 270,000 engines and will employ 5,000 people when fully operational. The plant is adjacent to Tata's factory that builds the Nano, the world's cheapest car.

Automakers Plan Expansion in India

India has in recent times become a battlefield for global vehicle manufacturers such as Ford, General Motors (GM), and Volkswagen (VW) as they look to offset sluggish sales in their domestic markets. These original equipment manufacturers (OEMs) have been steering towards India and China as they foresee huge potential in their billion-plus populations. Renault recently announced its target to sell around 100,000 cars in India by 2013, on the back of five new launches by end-2012. The automaker also plans to set up 100 new dealerships in the country by December 2012. The company will invest a total of 45 billion rupees in its Chennai plant in Tamil Nadu, which can currently produce 200,000 vehicles annually on a single-shift operation, doubling production by 2012 by starting a second shift. Meanwhile, Toyota Kirloskar Motor (TKM) has also announced today that it will invest a further INR16.5 billion in order to expand production capacity at its two plants by 150,000 units to 310,000 units per annum (upa) by 2013. Toyota is shifting production of the Corolla to its new Bidadi plant near Bangalore and ramping up output of the Etios and Etios Liva models at the new facility. Meanwhile, the company also plans to ramp up production of the Innova and Fortuner models in response to increasing demand.

Hyundai India meanwhile plans to launch six new models within the next three years in a bid to maintain its share of the domestic market. The automaker also plans to invest around INR2 billion by 2016 in marketing and brand promotion. GM India, which recently launched the Beat diesel, has set a target of tripling sales by 2013 by selling engines to other automakers. The company will increase production capacity at both its Halol (Gujarat) and Talegaon (Maharashtra) facilities, investing USD500 million over two years.

Announcing its first-quarter fiscal year (FY) 2011/12 results, domestic automaker Maruti Suzuki also divulged plans to invest about INR30 billion in FY 2012/13 in various areas, including capacity expansion and new model launches.

Outlook and Implications

Gujarat is becoming a major investment destination for the automotive industry. Global and local carmakers are being attracted by its proximity to the coastline and its ongoing investment in building ports. Capacity constraints at India's traditional ports have been one of the limiting factors for export-focused automotive manufacturing in recent years. PSA Peugeot-Citroën is also reportedly scouting land in Gujarat for its new plant, and to that end the company's officials recently met Gujarat's chief minister.

Ford is seeking to gain a greater share of the second fastest-growing vehicle market in the world as several other global automakers such as Toyota, Nissan, VW, and GM are lining up new models and boosting investment in the country, with a focus on exports. The latest investment brings the US carmaker's total investment in India to some USD2 billion. The new factory is being set up as Ford strengthens its presence in India in a bid to gain a stronger foothold in this growing market, where it plans to introduce as many as eight new models by 2015. The company is expanding aggressively in those markets around the world that have the most growth potential. The company currently has four plants under construction in China and one in Thailand, aside from its facilities in India. Ford believes that these new facilities will help it reach its goal of increasing worldwide sales by nearly 50% by the middle of this decade to about 8 million vehicles a year. The company expects that some 60–70% of growth will come from the Asia-Pacific and Africa region over the next 10 years.

Ford already has a plant near the southern Tamil Nadu port capital of Chennai, where it manufactures small cars such as the Fiesta, as well as the Endeavour sport utility vehicle (SUV). This plant has the capacity to assemble up to 200,000 cars a year. Ford has been witnessing increased demand for its compact Figo model, which it began exporting in August last year. The carmaker sold more than 60,000 units of the model, including exports, in the first six months of 2011, year-on-year (y/y) growth of over 50%. Ford plans to focus mostly on the small-car end of the Indian market, which accounts for about 70% of all new car sales in the country, and on the medium and large cities that are a tier below Delhi, Mumbai, Chennai and Bangalore, such as the likes of Amritsar in Punjab and Srinagar in Kashmir. Meanwhile, the automotive components industry is moving in sync with the expansion plans of its automaker clients, and significant investments in Gujarat by suppliers are likely to follow.

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Posted by Prashant Gandhi on 29 July, 2011 11:25:45 AM IST #