Ford (NYSE:F) is doing well domestically in terms of growing revenue and gaining market share, but it's struggling on the international level. Let's see why Ford's having trouble expanding its market share in India, and what it can do to improve moving forward.
High inflation and interest rates are holding India's consumers back by reducing their disposable income. The current inflation rate of 6.1% as of August 2013 is the highest in the last six months. In order to curb inflation, India's central bank raised interest rates to 7.50% -- making getting a car loan harder and more expensive for the average consumer .
How is Ford doing in India?
For the last two fiscal years, Ford's been losing ground in the world's second most populous nation. From 2011 to 2012, its sales there have dropped by 15%. Losses for those two years netted 1.4 billion rupees ($23 million) for 2011, and 1.075 billion rupees ($17.5 million) for 2012, based on current exchange rates. On the upside, the company's Indian losses have decreased by 23% within that period.
Ford has just less than a 3% market share in India -- very low, considering the automaker has operated there for 17 years. Meanwhile, Hyundai, which has been present in India for 15 years, currently holds a 20% market share and is able to consistently generate profits.
What is Hyundai doing better than Ford?
Hyundai has been able to offer a more diversified product, with nine different models across multiple car segments. In contrast, years of inadequate product strategy have left Ford with only four vehicles aimed at Indian drivers. India's poor infrastructure and overcrowded cities spur drivers to choose compact cars -- which currently account for 70% of car sales there -- but Ford instead spent years focusing on larger sedans and SUVs.
To tackle this issue, Ford's expected to introduce the classic Ford Mustang in India in early 2014, followed by four other models, two of which are midsize hatchbacks. Moving forward, this car segment could help drive Ford's revenue growth; India's demand for hatchbacks is expected to double in the next five years. If Ford's new models impress customers, they could help the company gain market share over its competitors.
The small SUV category is growing more popular as well. Ford's recently launched Ford EcoSport has become one of the best-selling SUVs in the Indian market. This model helped drive overall sales in September, as Ford recorded the highest overall number of units sold within one month at 10,640 units. However, Ford has a long way to go in order to catch up to Hyundai that managed to produce 30,600 units in the same period.
Ford has invested $2 billion in production plants across India. The number of cars exported from the Indian plants to other countries are solid, but not many units are destined for Indian domestic sales. Most of the upcoming models will be produced at the plants in India, cutting costs and improving profit margins.
As an emerging market, India is in a developing stage with a growing middle class that is still in its infancy. Ford has an opportunity to gain some much needed market share as long as it can provide the right product. Expanding the current model lineup is a good start, as long as the models offered adapt to the needs of Indian consumers.
Adrian Moraru has no position in any stocks mentioned. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.