New York/New Delhi (CNN Business)Ford is ending production in India and taking a hit of $2 billion as it retrenches from a market that has been almost impossible for American automakers to break into.
In an announcement Thursday, the company said that roughly 4,000 employees will be laid off and manufacturing will end immediately. CEO Jim Farley said the move was "difficult but necessary" to achieve long-term growth.
"Despite investing significantly in India, Ford has accumulated more than $2 billion of operating losses over the past 10 years and demand for new vehicles has been much weaker than forecast," Farley said.
Ford's India head, Anurag Mehrotra, said that the unit has not been able to find a "sustainable path forward to long-term profitability that includes in-country vehicle manufacturing." He added that the decision was "reinforced by years of accumulated losses, persistent industry overcapacity and lack of expected growth in India's car market."
Two Ford plants in the cities of Sanand and Chennai will shutter in the coming months and the company will "work closely" with employees affected by the closures.
Ford (F) has long struggled in India, which was the world's fifth largest auto market last year. The automaker began operations there in 1995, and has invested more than $2 billion in the country over the past 25 years.
But it has barely picked up any market share. Ford's control of the market stood at roughly 1.8% in July, down from nearly 2.1% a year ago, according the Federation of Automobile Dealers Associations, a body representing automobile dealers.
Top carmaker Maruti Suzuki — an Indian firm owned by Japan's Suzuki Motor Corporation — had nearly 45% market share in July, while South Korea's Hyundai (HYMTF) controlled 17%.
Even with those challenges, the decision to end production surprised some industry experts.
"It has come as a shock since they had invested so much in India," said Hormazd Sorabjee, editor of Autocar India. He attributed Ford's problems to the company's inability to "get the Indian psyche," saying that the automaker had spent money in areas that customers did not appreciate.
Sorabjee pointed, for example, to the Sanand plant, which he argued was too costly. (The factory cost $1 billion and opened in 2015, according to Reuters.)
"It is built like a Taj Mahal," he added. "The western manufacturers just don't think frugal."
In 2019, Ford reached a deal with local rival Mahindra to transfer most of its Indian business into a new joint venture, but the deal fell apart late last year. The companies cited "fundamental changes in global economic and business conditions" caused in part by the pandemic.
Ford is the latest US carmaker to cut back its India business in recent years. General Motors (GM) announced in 2017 that it would stop selling cars in the country.
"While India appears to be a very promising market from outside, it is also a really tough one," said Ruchit Agarwal, co-founder and CFO of CARS24, an online marketplace for used cars. He called the market "price-sensitive," adding that the average selling price of a new car is about $10,000.
That cheap car market is "locked by a handful of manufacturers" who have figured out how to operate in Asia's third largest economy, Sorabjee said.