Ford (NYSE:F) has performed strongly in 2013, but the stock dropped recently after the company gave out a poor profit outlook. Opportunistic investors should take it as an opportunity as the drop is expected due to higher costs next year as Ford is planning to introduce 23 new vehicles, double this year's count.
Ford is aggressively looking to capture more market share across the world and that's why it is planning to introduce such a high number of models next year. The company's efforts have lead to results in a big market such as India and new vehicle introductions should further help it grow.
Ford has now created a pretty strong foundation for itself in India and looks set to benefit from the growing middle-class population. But it has had its share of hiccups in this market and success has definitely taken its own sweet time to come by. A look back at Ford's history in India and how it made its mark in this competitive market is a testament to the company's strategies and solid execution, which are strong reasons why investors should capitalize on the recent drop.
Ford's comeback in India
Ford's origins in India can be traced back to 1907 when the Model A was launched. Ford India Private Limited (FIPL) began production in the country in 1926, but shut down after 28 years as it was incurring losses. But Ford wasn't willing to quit and made a comeback in 1995 by setting up a joint-venture with Indian automaker Mahindra & Mahindra, known as Mahindra Ford India Limited. Three years later, Ford increased its stake in the venture to 72%, and thus was born the modern Ford India Private Limited.
When Ford came back to India, the country was in the early stages of liberalization. To attract Indian customers, it launched the Escort in 1996. But Ford didn't find much success with the car as it belonged to the premium segment and a lower-priced sedan from Maruti Suzuki (India's leading automobile company) didn't help either, and was finally taken off market in 2001.
Then came the Ikon and it turned out to be Ford's first success in India. Ikon was named the Indian car of the year in 1999. It became one of Ford's top-selling models in India and was finally retired in 2011 to make way for the Ford Classic. In 2003, Ford launched the popular Endeavor SUV for the Indian market to expand its portfolio.
But Ford still lacked a mass-selling product. Not many Ikons, Classics and Endeavors could be seen on the roads due to a variety of reasons - pricing, Ford's unknown after-sales service at that time, and the popularity of indigenous car makers such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra. As such, Ford needed to come up with a best-seller.
Ford gains momentum
The Ford Figo was launched in 2010, and this was just what the company needed. The Figo, a hatchback, can be considered an important car for Ford's fortunes in India. The small car market in the country has been booming and accounts for around 70% of total car sales, and the Figo managed to make a mark. The Figo crossed the 300,000-unit mark in August this year, no small feat in a market where segment leader Maruti Swift took eight years to cross the one-million-mark.
In fact, Ford claims that one Figo is sold every five minutes. This is not surprising as the car was voted India's Most Dependable Premium Compact vehicle in the 2013 JD Power Asia Pacific Vehicle Dependability Study.
Ford launched a face-lifted version of the Figo last year and this seems to have worked well for the company. The refreshed version is reported to have received 140 tweaks and improvements as Ford looks to keep the momentum going. Another important statistic that Ford revealed was that 65% of Figo customers were first-time buyers. Now, at less than $7,000 for the base model, the Figo undercuts the segment-leading Maruti Swift by around $1,000 and this seems to have had a positive effect on sales.
Ford recently showed off a small concept car known as the Ka with the objective of capturing more share in emerging markets. It is rumored that the Ka could be the successor to the Figo and if this happens, then Ford's fortunes in India could receive another boost.
The Figo helped Ford become a people's brand, but now the company needed to step on the gas.
The EcoSport magic
Renault's Duster created a whole new segment in India and popularized the compact SUV. Then Ford launched the EcoSport and knocked the wind out of the Duster's sails with its tempting pricing, futuristic interiors and aggressive exteriors. The introduction of the EcoSport led to a massive 31% drop in Duster sales in July as the EcoSport received 30,000 bookings in just 17 days.
Ford priced the base model of the EcoSport at around $9,300 as compared to the Duster's beginning price of around $13,300. This massive price difference positioned the EcoSport as a value-for-money vehicle and propelled Ford's sales through the roof even as Indian car sales declined in October.
Domestic passenger car sales in India in October came in at 163,199 units, a drop of 3.88% from the prior-year period. But Ford stood tall and posted record October numbers in India, with sales jumping 36% year over year to 14,935 units as the EcoSport continues to cruise comfortably. Domestic sales jumped 21% to 9,163 units while exports grew 71% to 5,772 units.
Ford has not just gained momentum in the Indian domestic car market, but exports from Ford India are also growing at a fast clip. Ford India has added 10 new markets to its export list as it looks to use the low cost of production in India to its advantage.
Ford has come a long way in India and seems set to grow further. But none of it would have been possible without a strong dealership and service network. Ford is rapidly growing its dealership network in the country. Ford has 265 sales and service outlets in 142 cities across India and its plans going forward are quite ambitious. By 2015, it plans to have around 500 sales and service outlets in India. Its employee headcount is also expected to increase 50% by next year.
Ford has invested $1 billion in a vehicle assembly and engine plant in India in the state of Gujarat which is expected to be operational by next year. It had also increased the capacity of its existing Chennai plant through a $142 million investment, adding an assembly line and an engine manufacturing unit. Once both plants are operational, Ford will be able to produce 440,000 cars and 610,000 engines annually.
Ford's performance in India might not have garnered much attention as it doesn't contribute much to sales. But this is one market that shouldn't be ignored. The Indian auto market is slated to grow at a CAGR of 16% until 2020, hitting a size of 9.3 million units annually - triple of what it is now - according to JD Power. Also, the compact SUV market is expected to grow to 126,000 units in 2015 from 6,140 last year, as reported by Reuters.
Ford is making the right moves by expanding its dealership network, improving capacity and introducing products at great price-points. It has finally hit the right chord with the Indian consumer and this is all what it needed to do to set the stage for a bright future.
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.