Ford plans to build a $900 million (Dh3.3 billion) production plant in India, doubling its investment in the country, as the US carmaker seeks to catch up with rivals in the second fastest growing auto market in the world.
Foreign car makers have been ramping up investment in a price-conscious Indian market, where small cars are the biggest sellers and domestic operators have long dominated the market.
Ford's planned factory in Sanand, in the business-friendly western state of Gujarat, will be running by 2014 and employ 5,000 people, it said. Tata Motors makes the Nano, billed as the world's cheapest car, in the same city.
"Lots of foreign players are only now realising what the India auto market offers them. Since the industry has evolved in the last three to four years, they are falling short of capacity and are now ramping up," said Vineet Hetamasaria, an auto analyst at PINC Research in Mumbai.
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With initial annual capacity of 240,000 vehicles, the plant will bring Ford's total capacity in India to 600,000. It will reduce the cost of getting vehicles to domestic market and give the company access to west coast ports for exports. Ford has another plant in the southern state of Tamil Nadu.
Foreign firms, most significantly South Korea's Hyundai Motor , the country's number two seller, have been making inroads into the local market and are increasingly using India as a hub to make and export small cars.
Ford, which plans to raise the volume of its global sales by 50 per cent to about eight million vehicles a year by the middle of the decade, began exporting its compact Figo model from India in August.
In the first six months of 2011, it sold more than 60,000 made-in-India units, including exports, more than 50 per cent higher than a year earlier. It's market share is around five per cent.
Car sales in India jumped 30 per cent in the year to March to close to two million. Sales growth has been nearly flat in recent months as higher fuel prices, rising interest rates and prices have dented demand, a slowdown that is widely seen to be temporary in an economy growing at about eight per cent.
Earlier this month, the Society of Indian Automobile Manufacturers (SIAM) forecast that car sales this fiscal year would rise between ten per cent and 12 per cent. It had previously forecast growth of 16-18 per cent.
"We don't see the fundamentals changing here in India and the rest of Asia, and that is that growth is going to be the order of the day," said Michael Boneham, Ford's India head.
Ford set up operations in India in 1995 and plans to launch eight new products in the country by 2015. It aims eventually to export the Figo to 50 international markets.
"Clearly, we're going to go after the volume, which is in the small car market," he said.