This Important Market Can Drive Ford Higher

| About: Ford Motor (F)

Summary

India will become the world's third largest automobile market by 2020.

Concentrating more on compact cars and SUVs will increase Ford's market share in India.

Increase in production is important to keep up with the soaring demand.

Sharp cut in excise duty will revive the Indian auto market in 2014.

In my last two Ford (NYSE:F) articles, I discussed in detail about the company's prospects in China and Europe. Ford reported impressive sales growth in February in both China and Europe. In this article, I will be focusing on the Indian automobile market.

The Opportunity

Nigel Harris, President of Ford India, expects the Indian automobile market to grow to seven million units by 2020. This means that by 2020, India will become the world's third-largest automobile market behind the U.S.A. and China. Harris said:

"What we are seeing at present is a relatively shallow decline. But the good thing about emerging markets is that when they turn around and grow, they grow fast! We stay on course to our One Ford Plan - match supply with demand, and ensure we continue to invest in our future by offering products and services that customers want."

Ford knows the importance of the Indian market and should continue to build on the success of 2013. In an interview with The Motley Fool, Ford's COO Marks Field said that the company is bullish on the Indian automobile market.

The increasing inflation rate and hiked car loan rates have stagnated the development of the Indian auto market, but things may change soon. Thus, it's important for Ford to make smart moves in order to gain market share from companies like Maruti Suzuki (OTCPK:SZKMF) and Hyundai (OTC:HYMLF), which account for over 50% of car sales in India.

Ford Moves

Indian people prefer to drive small cars. Compact car sales account for 70% of the total car sales in the nation. Ford only offers one car, the Ford Figo, to bolster its presence in the compact car segment. The Figo has sold more than 300,000 units in the country so far, which may not sound fantastic given that it has been present in India for almost four years. But this is undoubtedly impressive when you consider that Maruti Suzuki has dominated this segment and commands nearly 39% of the small car market.

The Figo was the most awarded car in India and in order to sustain this momentum, Ford recently launched a newer version called the 2014 Ford Figo. The 2014 Figo will come with a series of new features like a Wi-Fi dongle, color coordinated seat covers and LED interior lighting.

"Ford Figo was the first car in its segment to introduce Bluetooth connectivity and is setting a benchmark by offering internet connectivity on-the-go," said Vinay Piparsania, executive director, marketing, sales and service, Ford India.

In addition, Ford will also launch another hatchback called the Ford Ka in 2014 to further solidify its credentials in the Indian market. In the sedan segment, Ford will offer a newer version of Ford Fiesta, called the Ford Fiesta facelift, and the Ford Figo Concept Sedan. The Fiesta will compete against the likes of Fiat Linea and Hyundai Verna, while the Figo Concept Sedan's primary aim is to gain market share from Honda (NYSE:HMC) Amaze and Suzuki Dzire.

Meeting The Demand

The mini SUV segment has become widely popular in India and is expected to grow from 6,140 units sold in 2012 to over 126,000 units in 2015. Ford made an outstanding start in this segment as the Ford EcoSport has turned out to be the highest selling SUV in the country, dethroning rival Renault Duster. Better looks and a better interior design allowed EcoSport to surpass the Duster's sales within three months of its launch.

Also, just like the Figo, EcoSport has become the most awarded car of India. The EcoSport has bagged over 30 awards and the demand for the car is so high that the Blue Oval is struggling to keep up with it. The car hit the Indian market in June 2013 and the demand was so high that bookings had to be stopped in September after touching 60,000 units. Six months later only 40,000 units of the car have been delivered to customers. The waiting period continues to be between three and six months, depending on the variants on offer.

Ford has lost many customers because of the long waiting period, but the car is still popular in the Indian market and Ford wants to capitalize on this opportunity. The company has taken a giant leap forward to satisfy the demand for the EcoSport. Ford aims to double the production of the EcoSport by starting a 24-hour shift at its Chennai based plant from mid-2014. This will certainly bring down the waiting period as it will enable Ford to produce nearly 160,000 vehicles in 2014. Ford will be opening an engine and vehicle assembly plant in India in 2014, an investment of roughly $1 billion. Ford has struggled in the Indian market for quite some time now, thus it's important for the company to satisfy the demand of the people.

Cost Reduction

Ford, along with other car manufacturers, announced price cuts across its entire product line up with the declaration of interim budget that brought a sharp cut in excise duty over cars in India. This will reduce the cost of cars by $500-$1,800 and will further boost auto sales in India.

Conclusion

Ford has laid out impressive plans to turn around its business in Europe and its initiatives in the Chinese auto market look impressive too. Now the company is also focusing on the Indian market, which is good news as India is the second-most populous nation in the world. Historically, Ford has failed to adapt to the taste of the Indian people, however this may change soon. The Blue Oval is looking to introduce new products in the Indian market and this should improve its market share, which currently stands at a mere 3%. Considering the moves that Ford is making in the Asian and European market, investors can expect stronger top and bottom line growth in the years to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.