Ford has small cars and emerging markets in its eyes.
Shares of the Dearborn, Mich.-based automaker fell along with the rest of the market to close down 1.0%, or 6 cents, $6.10, despite announcing Tuesday that it plans to invest $500 million to double its production in India and start making a low-cost small car in order to expand its market share in one of the world's fastest growing economies.
Ford Motor (nyse: F - news - people ) added that a significant part of its investment will go into developing new products, such as the small car, in the next two years, as well as construct an engine manufacturing facility by 2010.
The company noted that the $500 million increases its total commitment in India to more than $875 million in an effort to make India one of the strategic production hubs for small cars in Ford’s Asia Pacific and Africa region.
The company’s move comes amidst slumping sales in the U.S. (See “Ford Eats Toyota's Dust”) and a rising middle class in India whose incomes drive demand for cars.
Ford is fighting in an Indian market dominated by Japan’s Suzuki Motor (other-otc: SZKMF - news - people ), South Korea’s Hyundai Motor, and the Indian Tata Motors (nyse: TTM - news - people ).
Tata Motors is hoping its small car will make inroads into the market for two-wheelers in India (See “Tata Motors Unveils Details Of ‘1-Lakh’ Budget Car”).
Within the automobile sector, Tata's closest competitor is Maruti Suzuki, which makes 50% of the cars on Indian roads (See “Maruti Unfazed By Tata’s Small Car”).
During a visit to India in late-2007, Suzuki Motor Chairman Osamu Suzuki expressed skepticism that an auto manufacturer could produce a vehicle at the selling price promised by Tata.
In 2007, Nissan (nasdaq: NSANY - news - people ) Chairman Carlos Ghosn also announced plans to make a car priced at $3,000 for the Indian market.
In an ironic twist, not only is Ford expanding in India while Tata is expanding outside of the country, Ford is selling its international luxury brands to the Indian company while trying to sell more cars in India (See “Tata Motors: Ready To Take On The World?”).
In 2007, Ford announced it was making a $500 million investment to build small cars in Thailand shortly after it announced it launched production of small cars in at a $510 million facility in China.
Ford plans to double capacity at its existing plant near the southern Indian city of Chennai to 200,000 cars over the next three years to accommodate production of the small car.
As part of its expansion the company will be hiring 1,500 people and aims to start manufacturing 50,000 engines within two years and then scale up production in phases to 250,000 engines.
Companies like Ford have not had much success in India because they mostly tried to sell sedans. Ford sales in India dipped slightly in 2007 to around 40,000 units from 42,060 in 2006.
Ford India added 20 new dealers in 2007, bringing the total to 130 locations throughout the country. The company plans to expand its dealership base for the planned rise in domestic sales.
The Associated Press contributed to this article
