Ford bets big on India with $900m plant

Reuters (Mumbai) - Ford Motor Co plans to build a $900 million production plant in India, doubling its investment in the country, as the No. 2 U.S. carmaker seeks to catch up with rivals in the second-fastest growing auto market in the world.

The planned factory in pro-business Gujarat state, in western India, is expected to be running by 2014 and will employ 5,000 people, the company said.

With initial annual production capacity of 240,000 vehicles, the plant will bring Ford's total capacity in India to 600,000 and reduce the cost of getting vehicles to market. Ford has another plant in the country's southern-most state of Tamil Nadu.

The Indian car market is dominated by domestic firms, although foreign firms, most significantly South Korea's Hyundai Motor , have made inroads. Ford declined to spell out its market share, but industry analysts said it was very small.

The U.S. firm is not alone in boosting investment in India, where car sales jumped 30 percent in the year to March to close to 2 million.

Others such as Toyota Motor Corp , Nissan Motor Co , Volkswagen (VOWG_p.DE) and General Motors are lining up new models and adding investment.

"Lots of foreign players are only now realizing what the India auto market offers them. Since the industry has evolved in the last 3-4 years, they are falling short of capacity and are now ramping up," said Vineet Hetamasaria, an auto analyst at PINC Research in Mumbai.

"In terms of geographical reach also, it gives Ford an advantage because they will now have two facilities, both on the coast, one in west and one in south," Hetamasaria added.

Michael Boneham, president and managing director of Ford India, said the arrangement will help cut costs in India.

"It takes approximately up to 10 days to get our cars from Tamil Nadu to northern India. This will significantly reduce that time and the cost it entails," he said.

"It does definitely reduce our logistics cost," he said in a conference call.

Locating the plant in Gujarat near a port will also allow exports in the future, Ford's head of Asia-Pacific and Africa Joe Hinrichs said.

Ford has been seeing increased demand for its compact Figo model, which it began exporting in August last year. The car maker sold more than 60,000 made-in-India units, including exports, in the first six months of 2011, a year-on-year growth rate of more than 50 percent.

The company, which also sells the Fiesta sedan in India, recently said it would invest $72 million to increase capacity at its engine assembly plant in Chennai, in Tamil Nadu, to support its sales and export growth plans.

Ford has four plants under construction in China, the world's biggest and fastest-growing major car market, and one in Thailand as part of plans to increase global sales nearly 50 percent to about 8 million vehicles a year by the middle of the decade.

"We are aggressively expanding in markets around the world that have the most growth potential," Boneham said in a statement earlier on Thursday.

SLOWING DEMAND NO DETERRENT

The Indian passenger car market is dominated by Maruti Suzuki , which has about 45 percent share of sales. It is followed by Hyundai, with 18 percent, Tata Motors with 13 percent and Mahindra & Mahindra , with around 6 percent.

Market growth is slowing sharply though following several increases in interest rates and a rise in fuel prices.

Earlier this month, the Society of Indian Automobile Manufacturers (SIAM) forecast that car sales this fiscal year would rise between 10 percent and 12 percent. It had previously forecast growth of 16 percent to 18 percent.

Foreign automakers, however, are posting rising sales, driven by exports. Many are relatively new entrants to India and have lower bases of comparison.

The Indian unit of Toyota posted a 94 percent rise in June sales, driven mainly by its Etios sedan, which accounted for nearly 50 percent of its sales.

On Wednesday, Toyota Motor Corp said it would spend an additional 17.2 billion yen ($220 million) to boost output capacity in India to 310,000 vehicles a year in 2013, in its second announcement of an expansion there in as many months.

Nissan saw sales rise 21 times from a year earlier, with domestic sales at 1,632 cars and exports of 9,072.

In April, General Motors' India unit said it aims to grow at twice the rate of the country's automotive sector in 2011, while Hyundai Motor Co's Indian unit said sales will rise 15 to 17 percent this year.

India remains attractive for automakers and global players have increasingly relied on growth in China, India and other emerging economies to offset weak sales in their home countries.