Hyundai-Kia combine seem to be the favourites to acquire Ford’s Chennai plants.
Published on Sep 27, 2021 05:50:00 PM
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With Ford in exit mode from India, it remains to be seen what is in store for its two manufacturing plants in Chennai and Sanand.
The DMK government in Tamil Nadu has hinted that it will play a proactive role in identifying a buyer but this does not necessarily mean that the existing workforce will also be the latter’s responsibility. In the case of the manufacturer’s Sanand plant, the Gujarat government has not articulated any such intent yet.
Ford has already confirmed that car production will continue at both Chennai and Sanandplants for a few months before closure. It will, however, continue to make engines at Sanand for its operations worldwide as part of the strategy to use India as a key hub.
If industry grapevine is to be believed, the company is not going in for a distress sale and will look for a good price for both plants. It has already written off losses exceeding $2 billion (Rs 14,802 crore) in the last decade and will now have to factor in a hefty payout as compensation to employees and dealers. Ford could square this up by way of a high ticket price for its plants, though the big question remains: Will there be any suitors? After all, the last 18 months have been extremely difficult for manufacturers, thanks to the pandemic.
Even while there is a recovery in terms of car sales, the fact remains that the Indian economy was already in the midst of a slowdown before COVID-19 made its presence felt. This was also among the many reasons why Ford decided to shut manufacturing operations.
One of the names doing the rounds is the Hyundai Motor Group which is apparently being sounded out by the TN government to seriously consider acquiring Ford’s plant in Chennai. There is no official confirmation on this development but assuming there is some truth to the story, it could be in the form of a Hyundai-Kia combine that will step in as the knight in shining armour. An auto industry official says it makes perfect sense to consider the Ford plant as an option. “There is a robust vendor base already in place along this belt which is a huge bonus,” he adds.
Even though they are part of the Hyundai Motor Group, the two South Korean brands are fierce competitors worldwide. Kia’s plant is in Anantapur, Andhra Pradesh,while Hyundai has been operating out of Sriperumbudur near Chennai for 25 years now.Incidentally,the latter’s facility is barely 30km from Ford’s plant in Maraimalai Nagar.
The fact also remains that Chennai is a better option than Anantapur,for Kia, as it offers better access to hotels, schools, hospitals and easier access to an international airport. To that extent, Kia’s expatriates will welcome the move though these are still early days.If the Hyundai Motor Group does acquire the plant, as rumoured,there are a lot of issues that need to be resolved first:acquisition cost, relocating plant and machinery, hiring workforce at the plant and so on.
Given the high labour cost structure, the chances of the new buyer absorbing this workforce is a remote possibility. Although there are indications that the separation package will be generous,it is not likely to cut ice with employees – who are in their mid-30s –and looking for a permanent job. Labour costs are the last thing any manufacturer wants under these circumstances, especially when investing big bucks on alternate fuel technologies.
Whether Ford will face the same resistance from its workforce at Chennai and Sanand as its American counterpart, General Motors, is experiencing at Talegaon, near Pune, remains to be seen. The latter had announced early last year that this facility would be sold to China’s Great Wall Motors, but the pandemic derailed the process, even as workers protested the separation package offered by GM.
Protests will not alter Ford’s exit plans, but the process could end up taking longer than anticipated. Labour-related issues are inevitable as the prospects of unemployment will outweigh any attractive package.This will also have political implications for both the TN and Gujarat governments, with the latter likely to be under greater pressure as it goes to polls late next year.
SAIC (Shanghai Automotive Industry Corp) already has a presence in Gujarat in the form of MG Motor India. It had acquired its long-term ally, GM’s facility in Halol when the latter had kicked off the first part of its India exit plans. SAIC refurbished the facility andgot it up and running in record time, while churning out a successful product like the Hector on the side. It is also no secret that MG Motor India is keen on growing aggressively and has been exploring a host of new locations.
With the anti-China sentiment still fresh in the memory of people, one has to wait and watch to see how things pans outif they plan to invest in the plant.Prime Minister Narendra Modi’s recent visit to Washington is also seen as a clear signal to closer bonding with the US while keeping China at bay.
In this backdrop, it is hardly any surprise that Great Wall Motors still has not got the go-ahead to take over GM’s plant in Talegaon even though it has spread its wings to Thailand, Russia and Brazil. However, SAIC-owned MG Motor Indiaalready has a plant in India and could therefore get greater leeway in making additional investments.“The Ford plant in Sanand would be the perfect fit for MG since it is in Gujarat too and not too far away from the existing site at Halol,” reckons an industry expert. He is also of the view that the BJP government will only stand to benefit.
“There is a lot of anger at the mishandling of COVID-19 in Gujarat which explains why there is a new chief minister at the helm with an all-new cabinet,” says a political observer. If a smooth handover of Ford’s facility can be made to MG Motor, it will be seen as a political triumph just before the elections.However, there is no guarantee that the existing workforce will automatically get a berth too in the process. After all, MG did not take over GM’s employees and preferred to start off on a clean slate.
Whilst on the Chinese, it is also no secret that Changan Automobile did explore the options of acquiring the American carmaker’s Chennai plant,although nothing much came out eventually. The company was also scouting for other locations in Tamil Nadu and Andhra Pradesh. Changan has since shelved its India plans and is repeatedly keen on getting started in the ASEAN region.
Right now, the list of potential suitors for Ford’s facilities remains in the realm of speculation since there is no telling what the future has in store. For instance, Tata Motors could be interested in the Sanand plant which is virtually next to its own facility that was the launchpad for the Nano. Similarly, will Stellantis (with plants in Chennai and Pune under the Citroen and Fiat Chrysler brands) consider the possibility of acquiring Ford’s Chennai unit?
What is clear though is that the 4,000-strong workforce at Ford India will bear the brunt, eventually, since the prospects of alternative employment are really dim at present. There have been substantial layoffs across the automotive industry and Ford’s decision to halt operations could not have come at a worse time for them. They will be hoping that the new owner will add them to its rolls even though it is highly unlikely. Ford, on the other hand, wants to sell its plants with the workforce intactto minimise job losses.
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