Ford Exits Indonesia: The Right Move?
    Category: Companies & People By : Vivek Vaidya Read : 1568 Date : Tuesday, March 15, 2016 - 05:18:07

    U.S. auto giant Ford Motor Co. recently announced that it would be exiting the Japan and Indonesia markets in a rather abrupt move. The company cited a sustained lack of profitability as the key reason. It also seemed to suggest that all reasonable efforts were made and profitability remained elusive. Ford wasn’t the first U.S. auto firm to make such a decision. A few months back General Motors closed down its factory in Indonesia, although it did not announce an exit from the market. Why did Ford exit the largest market in ASEAN? What could it have done better to avoid it? Does this impact Indonesia’s position as an emerging automotive hub? Frost & Sullivan attempts to analyze this development and provide some perspective.

    ASEAN Market Scenario

    ASEAN light vehicles volume was about three million units in 2015. Although the market in the last three years has declined, the long-term growth trend is positive, which makes this market very attractive for global vehicle manufacturers. By 2020, ASEAN region is likely to be the fifth largest market worldwide. As China faces single digit growth and India faces infrastructure bottlenecks, ASEAN remains the bright spot in Asia’s growth story.

    This market however, is a Japanese stronghold. In Thailand and Indonesia, Japanese players control over 90% of the market. Proton is the only non-Japanese player in top five players across all three countries. Naturally, this market has also proved to be extremely difficult for non-Japanese players. Four out of top 10 global automakers—VW, Hyundai-Kia, GM and Ford—are struggling to establish themselves in this market. Ironically, among these four players Ford has the highest market share in the region, yet it had to make this decision to exit the largest and the fastest growing market in the region.

    Regulations Changing The Market

    ASEAN is characterized by dynamic regulations that have dramatically altered competitive landscapes. Changing regulations have led to new product segments. In Thailand, the Eco car has become one of the largest and fastest growing segments. Carbon based taxation further assists the development of the Eco car as a segment, against the traditional mainstay pickups. In Malaysia, incentives for hybrid car local assembly have resulted in increased penetration of hybrid cars. And in Indonesia, the low cost green car (LCGC) has emerged as the most promising segment, amidst a declining market.

    Honda has successfully aligned itself to each country’s changing regulations and handsomely benefitted. In Thailand, the timely launch of an Eco car grew its market share from 22% to 26%. In Malaysia, it adopted a localization strategy to win duty concessions. Competitive pricing led to a surging market share from 6% to 15%. In Indonesia, a LCGC program proved beneficial as its market share surged from 7% to 21%. The strategy across markets is an alignment of its cars to regulations.

    Ford’s Position in ASEAN

    Ford has always struggled to gain market share in ASEAN, particularly in Indonesia. Our analysis suggests that Indonesia was the weakest market for Ford in ASEAN. Ford’s market share across ASEAN increased marginally from 2.7% to 3.2% in the last three years, and, conversely, its share in Indonesia dipped from 1.2% to 0.7% in 2015.