Aiming to cut losses in stressed markets, Ford Motor Company will be exiting passenger car manufacturing in its Russian joint venture named Ford Sollers. Ford’s exit from the Russian car market will entail closure of an engine factory and two assembly plants in Russia. Ford will also have to bear charges close to $450 – $500 million (Rs 35,000 cr). This is part of the $11 billion charge that Ford has allocated for restructuring its global business.
After Ford’s exit, Russia’s Sollers will acquire controlling stake in the joint venture. Restructured Ford Sollers will focus entirely on commercial vehicles. Passenger car production will be stopped by June end this year.
Ford’s exit from Russian car market is part of a long-term strategy to cut losses in unprofitable markets. Earlier, Ford had taken similar decisions in Europe and South America. Ford’s Russian exit will create significant job losses, arising from the closure of engine plant in Elabuga and assembly units in St. Petersburg and Naberezhnye Chelny.
In addition to exits, Ford is also focusing on partnerships to secure new sources of revenue. Ford is currently in talks with Germany’s Volkswagen AG to expand an alliance for commercial vehicles and pickup trucks. Focus will be on developing electric and self-driving vehicles and examine opportunities for plant consolidation and forming partnerships at the regional level.
In Russia, restructured Ford Sollers will aim to improve its dominance in commercial vehicles and expand operations in Europe and other markets that offer better returns on investment (ROI). Ford was the first international automaker to launch operations in Russia in 2002 by opening an assembly plant in St Petersburg. The joint venture with Sollers came in 2011, where both companies held 50 per cent stake. In the restructured entity, Sollers will get controlling stake of 51 per cent.
Ford said that Russian car market has been experiencing a downturn in recent years and recovery has been far slower than expected. Ford’s view has been substantiated by the Association of European Businesses lobby group that has pegged Russia’s passenger car sales growth at 3.6 per cent in 2019. This indicates a slowdown, as growth was higher in 2018. Russian consumers’ increasing preference for affordable cars has also dented Ford’s car business in Russia.
In India too, Ford has not had much success. Their latest plan has resulted in the company forming a JV with Indian car brand Mahindra. As part of this plan, Mahindra and Ford will jointly develop new cars, share engines. Mahindra has also started selling Ford cars at their dealership on trial basis.