Restructuring plan: Ford India talks up compensation with dealer partners

Ford India on Wednesday met its principal dealers to work out a compensation formula as it prepares to exit India's automobile market as part of a restructuring it announced on September 9. Most of the company's 170 dealers signed a non-disclosure agreement – a precondition set by the company to start negotiations.

The day-long meeting hosted by Anurag Mehrotra, Ford India managing director, was attended by 10 principal dealers of the company at its corporate office in Gurugram.

As part of the restructuring plan, Ford will cease production of cars and sport utility vehicles at its plants and will sell vehicles only till stocks last. 

In a response to a query on the company's dealer compensation plan, a spokesperson for Ford India said, “We have a plan that ensures continued viable business for our dealer partners. We like to share those details first with our dealer partners than anyone outside."

Meanwhile, in a meeting with Minister of Heavy Industries (MoHI) Mahendra Nath Pandey on Tuesday, the Federation of Automobile Dealers Association requested the ministry to act as an intermediary between dealers and the company.

"This is to ensure all dealers get fair compensation and the company gives a written commitment regarding servicing the vehicles for 10-15 years," said a person who attended the meeting.

"Going by the GM precedent, the track record of companies that exit the market hasn't been good," pointed out a dealer.

The Ford India spokesperson said the company is working with its dealers. "We continue to maintain full customer operations for our existing customers with service, aftermarket parts, and warranty support,” he said.

The 170 dealers have 391 outlets and have invested approximately Rs 2,000 crore for setting up their dealerships.

Cumulatively, dealerships employ around 40,000 people. Dealers currently hold 1,500 vehicles, which amount to Rs 150 crore via inventory funding from reputed Indian banks.

Revenue to crimp to less than a fourth in FY22

Ford India’s revenue from operations will crimp to less than a fourth of its 2020-21 (FY21) tally, with the announced closure of its automotive operations, according to India Ratings & Research. Ford India’s 2021-22 revenue is expected to be Rs 2,000-3,000 crore, a sharp fall from Rs 13,516 crore in FY21, said the rating firm in a recent report.

The company's management has indicated that Ford India’s near-term operational performance is likely to be in line with initial 2019-20 earnings. During the year, it had a revenue of around Rs 2,052 crore.

Even as the revenue is set to shrink, the local arm of the Detroit-based automaker still has strong cash and equivalents balance of Rs 331 crore as on September 15, compared to nearly Rs 380 crore in FY21.

As on September 15, Ford India’s net debt stood at just over Rs 6,316 crore, compared to FY21 tally of nearly Rs 5,230 crore. Seventy per cent of this is in the form of inter-corporate loans from its parent, Ford Motor Co.