No one can fault the people of India for worrying about their economic and political future. The country is experiencing its fifth government in two years, while the rupee has fallen 11% against the U.S. dollar. Ironically, low demand and more competition in India's car market is driving domestic, not foreign, firms out of manufacturing ventures.
Mahindra and Mahindra Ltd. is letting Ford Motor Co. take a majority stake in the Mahindra Ford India Ltd. joint venture, which makes Escorts and Fiestas. Ford reportedly paid $56 million to boost its share from 50% to 70% in the $500 million assembly project in western India.
Honda Motor Co. also has reportedly increased its share in its Indian venture to 90%. Fiat SpA's Indian partner, Premier Automobile Ltd., completely pulled out of that venture, selling majority control to Fiat. Suzuki Motor Corp. and partner, Maruti Udyog Ltd., sparred last year but have reconciled.
Observers say automakers overestimated the size of India's middle class and the market's growth potential. Sales that once were predicted to increase by 15% to 20% per year, topping 1 million by 2000, now are expected to grow only 5% to 6%. Those entrenched in India, like Maruti and Daewoo Motors India, are cutting prices. Ford is discounting Escorts, and General Motors India Ltd. is eying the launch a variant of the Astra and price it less than current models.
