Once a catalyst for Tamil Nadu's industrial transformation, Ford now stands poised to reignite its Chennai operations, thanks to the state’s proactive industrial policies.
19 Sep 2024 | 6554 Views | By TE Narasimhan
Ford has left its mark on the global auto industry many times over, but in Tamil Nadu, the company's contribution was seminal. It can perhaps be credited with laying the foundation stone for the so-called "Detroit of South East Asia”. Equally remarkably, Ford managed to bring two bitterly opposed political ...
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Ford has left its mark on the global auto industry many times over, but in Tamil Nadu, the company's contribution was seminal. It can perhaps be credited with laying the foundation stone for the so-called "Detroit of South East Asia”. Equally remarkably, Ford managed to bring two bitterly opposed political parties in the state -- Jayalalithaa's AIADMK and Karunanidhi's DMK -- on the same page.
Three decades on, Ford is again set to make history by becoming the first company to revive production at a previously shuttered plant in the region. The company, in September, submitted a Letter of Intent (LOI) to the Tamil Nadu government, outlining its plan to repurpose its Chennai plant for manufacturing export-oriented vehicles.
This development comes less than two years after Ford announced its withdrawal from the Indian market. In September 2021, citing financial challenges and underutilized capacity, the American automaker decided to cease vehicle production at its plants in Gujarat and Tamil Nadu.
The company noted that it had sustained accumulated operating losses of over $2 billion over the previous ten years. Its Chennai and Sanand plants, with a combined annual production capacity of more than 400,000 units, were operating at less than 20% capacity, producing around 80,000 cars annually with half being exported.
Another factor in Ford's initial decision to leave India was the dissolution of its planned partnership with Mahindra. Announced in 2019, this joint venture was cancelled on December 31, 2020. Ford had pinned much of its future strategy in India on this collaboration, and its failure had a substantial impact on Ford's operations in the country.
Ford's History with Tamil Nadu
Ford played a crucial role in developing Tamil Nadu as a automobile manufacturing destination. However, Tamil Nadu was not in the picture when it first entered India in 1995 by establishing a joint venture with Mahindra & Mahindra to manufacture the Ford Escort.
Tamil Nadu came into the picture only when the company started to consider establishing a manufacturing plant, having tasted initial success. An independent plant in Tamil Nadu -- outside the scope of its JV with Mahindra & Mahindra -- was one of its options.
At the same time, the southern Indian state of Tamil Nadu was on another, equally transformative journey -- to emerge as the destination of choice for international manufacturing companies by leveraging its proximity to crucial markets such as South East Asia. This period also coincided with India's economic liberalization and Jayalalithaa's rise to power in Tamil Nadu.
Under Jayalalithaa's unconventional but determined leadership style, state bureaucrats were empowered to do whatever it took to realise the vision of making Tamil Nadu a model, industrial state.
Still, says a former bureaucrat who was part of the negotiations, it was hardly a piece of cake: "I still remember the sleep-less nights we spent to bring Ford into Tamil Nadu. She (Jayalalithaa) was clear, we need to ensure Ford don't go anywhere except Tamil Nadu."
Jayalalithaa herself played a key role in clinching the deal. Nowhere was this more apparent than in a critical meeting she hosted with a delegation of Ford and Mahindra executives.
Journalists covering the story still remember a senior executive from Mahindra & Mahindra coming out of the meeting and telling waiting journalists: "We have lost!" The Ford team was reportedly swept off their feet by Jayalalithaa's flawless English and the panache with which she served refreshments to the delegation impressed the visitors a lot.
Ford India’s first manufacturing plant in India soon came up near Chennai, marking the beginning of Ford's independent operations in India. This, along with the arrival of South Korean chaebols such as Daewoo and Hyundai, consolidated Tamil Nadu's image as the destination of choice for international car manufacturers.
The Tamil Nadu factory has seen several launches, including the Ford Ikon in 1999, and the Ford Figo in 2010.
Revival Plans
If it was the special touch of Jayalalithaa that helped tie-up the deal with Ford the first time, it has been the personal involvement of another chief minister, MK Stalin, which impel the efforts to reopen the factory.
A key development in this regard was Chief Minister Stalin's recent visit to Ford's headquarters in Dearborn, Michigan. In a social media post, Stalin mentioned having "a very engaging discussion" with the Ford team, exploring the feasibility of renewing Ford's three-decade partnership with Tamil Nadu.
It is learnt that the state government, in its discussions with Ford executives over recent months, has emphasized Tamil Nadu's growing electric vehicle ecosystem. The region has attracted investments from various automakers and EV-related companies, including Tata, Hyundai, Ola, and others, creating a robust infrastructure for EV manufacturing.
While specifics are still emerging, there are indications that the revived Chennai plant could align with Ford's broader strategies, potentially including a focus on electric vehicles and exports aimed at Southeast Asian markets. This would align with Ford's global "Ford+ Growth Plan".
Boost for Tamil Nadu
Ford’s planned reopening of the Indian plant is as much about a strategic shift by the company as it is about Tamil Nadu’s efforts to consolidate its position in the automobile manufacturing map of India.
Tamil Nadu’s initial success with Ford opened the floodgates for other major automakers. Hyundai followed soon after, with its memorandum of understanding (MoU) closely mirroring Ford's agreement with the state government. The subsequent DMK government, led by M. Karunanidhi, continued this momentum by finalizing the deal with Hyundai.
Over the years, other major players like BMW, Daimler, Renault-Nissan, Mitsubishi, Yamaha, and Caterpillar set up operations in the state. This influx of manufacturers also led to the growth of a robust auto component industry, creating a comprehensive ecosystem for automobile production.
Today, Tamil Nadu's automotive sector boasts impressive statistics. According to Guidance Tamil Nadu, the state accounts for about 35% of India's auto component production, 36% of the country's two-wheeler manufacturing, and 25% of the four-wheeler production. With over 1,500 factories producing automobiles and auto components, Tamil Nadu has established itself as one of the top ten automobile hubs globally.
The state's success in attracting and retaining automotive investments can be attributed to several factors: its strategic location that lowers logistics costs for exporters, a skilled and disciplined workforce, well-developed supply chain networks, and consistent industrial policies. Successive state governments, regardless of political affiliation, have generally maintained a pro-industry stance, addressing challenges such as labor disputes, power shortages, and bureaucratic hurdles.
Even though efforts have been made by other states – particularly Gujarat – to attract major industries and investments, Tamil Nadu’s momentum continues to be largely intact. Recently, the state signed an MoU with Tata Group for setting up a new vehicle factory, with the auto major committing an investment of Rs 9,000 crore over the next five years and promising to generate employment for around 9,000 people.
In another significant development, Vietnam's leading electric vehicle manufacturer, VinFast, committed an investment of Rs 16,000 crore ($2 billion) in January to set up an integrated electric vehicle facility in Tuticorin, Tamil Nadu. The company proposes to create employment opportunities for close to 3,500 local workers.
Hyundai Motor India has also announced long-term investment plans in Tamil Nadu, with a commitment of Rs 20,000 crore over a period of 10 years for further inroads into electric vehicles and modernization of vehicle platforms.
Tamil Nadu is targeting around Rs 50,000 crore investments in the EV sector, according to State Industries Minister T R B Rajaa. "Our state is policy driven and has a clear vision of inclusive, sustainable growth. Tamil Nadu is among the few states with a future-ready EV policy," said Rajaa. The policy, backed by a 'Battery-as-a-Service' initiative, offers subsidies for firms installing battery-swapping stations, apart from concessions for equipment cost and machinery purchase.
While Ford's potential return is certainly cause for optimism, it's important to note that challenges remain. The state needs to be mindful of recent increases in strikes and protests at some major facilities. Additionally, rising competition from other states, especially neighboring ones and Gujarat, requires ongoing attention.
Nevertheless, the potential return of Ford could mark another significant milestone in Tamil Nadu’s ongoing evolution as India's auto manufacturing hub. The state's ability to adapt to changing industry dynamics, particularly the shift towards electric vehicles, will likely play a crucial role in determining whether it retains its status going forward as well.