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Ford's dilemma: It has to sell more cars in places like India to survive but can it make a profit there?
01/13/2010 10:45 am EST
Ford Motor (F) CEO Alan Mulally has signaled that the company will go hard after customers in the world’s developing economies with its new platforms for small and mid-sized cars. A new car built on the re-launched Fiesta platform and branded as the Figo will be produced in India and sell for under $8,000, for example.
Ford doesn’t have much of a presence in India. The company sold just 40,000 cars there in 2009. The expanded Chennai, India plant that will make the Figo will have the capacity to make 200,000 cars annually.
Selling cars globally rather than concentrating on the North American market is essential for any long-lasting revival for Ford and General Motors (GM).
But it’s not clear how much money any auto company is going to make in the car business in the years ahead.
To sell in developing markets, prices already have to be low—40% of Chinese car buys and 70% of Indian car buyers purchase vehicles selling for less than $7,500, according to Ford.
And prices are likely to keep dropping since the global auto industry is awash in excess capacity that even a global economic slowdown has done little to diminish. The problem is that most governments—from Washington to Kuala Lumpur—have decided to prop up local car makers.
“I hope,” Mulally said at the Detroit auto show, “we’re at a point where the industry understands it’s not about market share, it’s about profitable growth.”
I wouldn’t hold my breath waiting for that one.
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