Ford Motor's decision to close its Indian operations was met with shock and defensiveness Friday after Ford became the latest U.S. company to close its doors in a country with both tremendous possibilities and high hurdles.
The decision announced Thursday would affect 4,000 employees as well as hundreds of dealers and a considerable number of customers.
More than $272 million has been invested in setting up dealerships that employ about 40,000 people, said Vinkesh Gulati, president of the Federation of Automobile Dealers Associations in India, which represents more than four-fifths of the country's retailers.
Many Indians were expecting delivery of their new Ford vehicles Friday, the day of the Hindu festival of Ganesh Chaturthi, the birthday of a god worshipped as the harbinger of good things and a symbol of prosperity. Now selling those cars could become difficult.
"The first priority is service, but when a company exits, whatever they may say for confidence-building, no comment will ring true because customers are scared," Gulati said.
Ford is the latest prominent U.S. vehicle manufacturer to leave India, following Harley Davidson, which exited in the winter of 2020, and General Motors, which quit the local market in 2017.
Global manufacturing giants had long looked at India's growing middle class as a market to grab. They had also been enticed by the country's cheap labor and promises by Prime Minister Narendra Modi to cut red tape and make business easier to conduct.
Although the government has made some progress, it has struggled to remove barriers and construct a robust ecosystem. Industry experts say a lack of demand has discouraged the private sector.
The economy has also taken a hit from the pandemic. India recently posted strong economic growth on paper, but the official figures benefited from a sharp contraction last year when the government locked down the economy to contain the coronavirus.
Economists say India will struggle in coming years to make up the growth lost from the pandemic. Real household income fell last year as unemployment grew and tens of millions of middle-class Indians fell into poverty.
Ford plans to phase out its plants in India. A vehicle assembly plant on its western coast in Gujarat will be shuttered by the fourth quarter of 2021 and another for vehicle and engine manufacturing in the southern Indian state of Tamil Nadu by the second quarter of 2022. The company hopes to restructure its operations around electric vehicles and niche markets, like providing imported Mustangs to India.
Government officials Friday defended India's business environment in the local media, saying other automakers have prospered. Still, industry figures showed that demand for new vehicles has weakened in recent years, and automakers are dealing with industrywide challenges like a tight market for computer chips.