Ford India – Flying Hot Balloons?

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IN ONE OF OUR EARLIER ANALYSIS, WE HAD MENTIONED THE HOT BALLOON STRATEGY. UNDER THIS STRATEGY, CAR MANUFACTURERS PUT A BLINDFOLD OVER THEIR EYES AND TRY TO INSULATE THEMSELVES TO POOR SALES, OR THE NOISE IT GENERATES.

Often the poor sales is due to the showroom caught in the wrong part of product lifecycles, where multiple products are ‘cold’ and in the declining phases of their lifecycle. These products often need a lot of coaxing to move out of showrooms.

However, what keeps everyone alive and chirping are the ‘Hot Balloons’. These are promising product launches on the horizon. Now the distance to the horizon is debatable as carmakers often treat anything between six months to three years as the horizon. These promising product launches are often projected as solutions that will finally help the carmaker achieve the targets that senior executives had set on Day 1 in their PowerPoints.

The Hot Balloon strategy is critical for maintaining the equilibrium between Indian senior executives going about their daily jobs and expats who are often armed with the wrong forecasts for the Indian market.

Most often, the Hot Balloon has a good start and it soars high. However, as it gets progressively colder, it sinks, and sinks fast. The professional Hot Balloon strategy players do not waste their time in reheating old balloons – they have new ones on the horizon all the time.

The perfect Hot Balloon strategy relies on deep global pockets, an endless dose of “We are here for the long run” clichés, and

a bunch of suits whose confident smile cannot be wiped off even by deep splashes of red on Excel sheets. In short, Hot Balloon is a mix of perennial enthusiasm combined with either naiveté or weaselness, depending on how experienced the suits are.

 

WHAT HAS THIS GOT TO DO WITH FORD INDIA?

Make no mistake, we love Ford India. We have admired the fact that the company has applied its more than two decades of learning and delivered two consecutive successes. We also think that the Ikon was a mini-success in its own right, so let’s call it three successes.

That is three more than what GM has achieved in its equally long stay in India.

We like the fact that despite the struggles of yesteryears, Ford has committed itself to the Indian market and the next lot of products looks even more promising than the present and the past. We love the fact that Ford is amongst a handful of manufacturers who are going for a second plant (Sanand, Gujarat) in the country and where the plant construction is already in the advanced stages.

Ford Figo

We absolutely cheer the fact that how almost half of the plant output would be headed to the ports. We have loved the way the Figo was constructed, with Ford learning from manufacturers who were already successful in the country, and constructing a hatchback from an old generation platform architecture. In the process, the price was as competitive as a Maruti-Suzuki could come down to.

We love the way the transition from the unique-for-India Figo to the global One Ford has been smooth. We love the EcoSport and its five grilles.

The list is long – actually, there is little that we don’t like about Ford India.

However, we have been bothered with a few things lately. The first is obviously the way Figo volumes have deteriorated towards the end of the lifecycle, especially after the launch of the EcoSport. When the company launched the EcoSport in June 2013, the response was nice. However, it soon turned out that nearly all EcoSport customers were walking in from the Figo side of the showroom. While in the early stages, the Figo+EcoSport sales were a significant gan over the existing Figo sales, the gap between the two kept on diminishing. In November 2014, the combined Figo+EcoSport rolling 12-month average sales volume (61354 units) was at par with Figo’s rolling 12-month average volumes (61035 units) in Jan 2012.

So whatever the EcoSport has gained, the Figo has lost, and at times more. Incremental volumes for the brand have been next to nothing.

However, on paper, Ford does have the bragging rights to three successes.

This failure to milk a success for a long-time and moving off too soon to the next Hot Balloon is the characteristic of many carmakers. GM is the worst in this aspect, failing to hold on to recent sales spurts for more than a few weeks months. To some extent, even Honda has been popping Hot Balloons, though – luckily for them – they have a series of new launches lined up in the 2015-2016 period, which should see them riding high for a long time.

Coming back to the Figo, the once successful hatchback has faced a steady decline in volumes (12-month rolling sales) since Dec 2012. In this 24 month period, the company has introduced one minor upgrade to shore up sales but the impact has been negligible.

The company is already hanging coloured balloons and laying the red carpet for the next generation Figo / Ka, which should enter the market in the next few weeks. That’s two big Hot Balloons waiting in the wings.

What adds to the enthusiasm is the fact that replacing the Figo would be an ultra-modern hatchback as-well-as a compact sedan. That would allow Ford to play in two big volume segments. Total volumes would definitely be more than double of the existing Figo’s average lifecycle volumes.

EMMAAA is especially optimistic for the next generation Figo / Ka twins (subscribe to the EMMAAA forecast by mailing them at quicker (at) emmaaa (dot) com) because there is also a significant export volume planned. Normally, better volumes mean higher negotiating power with suppliers, resulting in competitive pricing.

The Figo / Ka Hot Balloons are important as they would define the showroom volumes for the company over the next three years.

 

FIGO NOT ALONE

The Figo is not alone, the Endeavour is another model which has been there for many quarters just to occupy a line in the monthly data sheet. Since December 2011, sales have been tapering with a random uptick keeping things interesting. That is not enough and the Endeavour has averaged less than 23 units per month over the last twelve months. Even flagship luxury sedans do much more than that. In comparison, Toyota has no problems in dispatching nearly 1500 units of the Fortuner every month.

Ford has responded to the situation by releasing pictures of the next generation Endeavour (looks delicious!), and sending a subtle message to customers to wait for the goodies and not buy the Fortuner. Unfortunately, most customers read the message as “Wait for the goodies; Don’t buy the Endeavour.” They then anyways went ahead and bought the Fortuner anyway.

Ford Endeavour

Ford has now pinned its hopes on the upcoming next generation Endeavour. It looks stylish and more in-line with the Toyota Fortuner’s looks. In the new Endeavour, Ford would finally be able to provide a competitive alternative to the Toyota Fortuner. That is the next Hot Balloon. It would be a challenge for Ford to keep this Hot Balloon flying high for long as the Fortuner’s grasp on the market is strong and competition would be increasing with more SUVs coming from Mahindra-Ssangyong and Jeep.

 

WILL THE ECOSPORT FOLLOW?

The EcoSport has been doing decent volumes since its launch in June 2013. While initial volumes started at 4000 units, they soon spiked up to more than 6200 units (absolute dispatches in the month) in September 2013. As a result, the 12-month rolling average touched a high of 50.81 units the following month. In real terms, the EcoSport’s initial response was so good (and Ford’s production planning not that good) that the company stopped taking bookings for a few months in order to clear long waiting lists.

Post that, dispatches slowed down as Ford India also had to meet export commitments. Volumes picked up a bit between June 2014-Aug 2014 when average dispatches were above 5000 units. However, post Aug 2014, volumes have declined. On a rolling 12-month average basis, the EcoSport has been managing volumes of above 4300 units.

The EcoSport has only been 18 months in the market and deriving any inference from the data would be premature and prone to errors. However, there is one clear takeaway from the 18-month data – the EcoSport has already reached its peak and its a downhill drive from here. The speed of the decline should be the key concern for Ford.

 

EcoSport Lifecycle and Forecast

What makes matters difficult for EcoSport are upcoming models from Honda (next year), Maruti-Suzuki (a bit later), Hyundai (not year) and Mahindra (very soon). The segment which the EcoSport has sort of ruled with the Renault Duster will soon get crowded. Even though the segment will expand with the entry of new models, everyone would also nibble at EcoSport’s sales.

What would also complicate things is that by middle of next year, the company would be busy playing with two Hot Balloons and a dip in the EcoSport’s volumes may not be fought tooth-and-nail.

But that would be perfectly in-line with the Hot Balloon strategy.

 

MISSING THE BUS IN OTHER SEGMENTS

Right after the Figo’s success, Ford managed to completely miss the bus in the Mid-Size segment with the Fiesta. Due to various reasons, the Fiesta’s pricing was completely off. The docile styling (compared to the edgy Hyundai Verna and the sharp Honda City) and the absence of real entry-level variants meant that interest for the Fiesta never picked up. A mid cycle refresh in early 2014 didn’t change matters and we don’t expect the company to make any special efforts till the next generation shows up. However, that is many quarters away.

 

EARLY REVEAL – A DOULE-EDGED SWORD

The EcoSport was first unveiled at Auto Expo 2012, a good 16 months before it actually hit the showrooms. The long gestation period allowed the company to generate a mini-euphoria for the product. It helped that the EcoSport was unique and was going to create a nearly new segment in the market.

The Early reveal strategy was one of the key points we checked with Ford’s senior management when we met them for the very first analysis on IndiaAutoReport.

The strategy proved good for Ford and the initial rush to the showrooms was something that the company had never witnessed in its history in India.

Ford repeated the strategy with the Figo Concept, the upcoming Compact sedan on the next generation Figo platform.

However, repeating the strategy often has its problems. An early reveal of the next generation often stops customers from buying the existing generation product. This is apparent in the case of the Endeavour where sales have plunged hard in the last few quarters, once the pictures of the next-gen SUV were published online.

In contrast, market leaders Maruti-Suzuki and Hyundai Motors take extreme care to ensure that the final look, shape and features of any new model are not revealed much in advance. Here Ford has another disadvantage. With all its new products being global in nature (One Ford!), looks and shapes are revealed a long-time in advance even if some random Brazilian blog manages to click some spy shots.

 

TAKING YOUR EYES OFF THE BALL

The problem with a comparatively low-volume, thinly spread, manufacturer is that the sales guys have to constantly work hard. They don’t have the luxury of a well-oiled machinery that keeps churning. Many years back, a senior sales executive at Ford India summed it up succinctly, “They (Maruti-Suzuki) spill a few drops if they sleep; I leak the entire bucket if I dose off for some time.”

 

IN THE END…

To summarise, Ford India’s main problem is an inefficient management of its product lifecycles. Most products start high and achieve their absolute peak within the first quarter. After that, there is a decline which in some cases is rather sharp. We feel that the company does not fight hard against the declining sales of its once popular products in the later half of their lifecycles, relying instead for new model arrivals to improve volumes and take things forward.

12-MONTHS ROLLING AVERAGE SALES DISPATCHES

From now on, for the purpose of analysing sales volumes, EMMAAA would be using the 12-month rolling sales method. Under this system, we consider the last 12 month net sales as a better indicator of performance than the much used (and abused) monthly dispatch numbers. This shift to a 12-month rolling sales volume ensures that any sudden spurts or declines in volumes are ironed out effectively. Also, since sales volumes in India are not exactly sales volumes, but dispatch volumes, a 12-month rolling volume system effectively negates anomalies introduced due to minor factors like temporary production disruptions, over-jealous sales managers or temporary logistics issues.

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2 Responses

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  1. Gautam H
    Feb 26, 2015 - 08:08 PM

    weaselness? I think you coined a new word there.

    That said, good article, as always enjoyed reading it. Most of your articles poke holes in fringe manufacturers strategies (or lack of it) which is enjoyable reading, but do also publish stuff on what manufacturers are doing right – but I bet apart from one or two examples, this will need digging pretty deep.

    Reply
  2. Abhi
    Mar 03, 2015 - 12:46 PM

    Nice analysis and the Hot balloons analogy was bang-on.

    Not sure what the people at Ford are smoking, they do have some really good products, but somehow they just manage to screw it up with all the other elements. Be it the timing of launch, pricing or marketing (or a complete lack of it)

    Reply

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