Ford Is Learning From Its Mistakes

Ford (NYS: F) has woken up -- to lost opportunities, that is. Small cars led the surge in U.S. car sales last month, accounting for nearly one-fourth of sales. Ford was happy, as its compact Focus saw an astounding 65% jump in sales from the comparable period last year.

To find the source of Ford's sadness, you have to look outside the U.S., all the way to India. The nation is fast emerging as one of the biggest small-car markets. Ford has lagged rival General Motors' (NYS: GM) efforts to get a foothold in India. Hyundai, which entered India a year after Ford did, has left its American counterpart far behind in the race to become the second-largest player in the country, thanks to its small-car thrust.

The good news is that Ford has realized its mistake.

Small cars, big plans
In an interview with Reuters, Ford India's president, Michael Boneham, admitted the company hasn't paid much attention to a segment that accounts for nearly 70% of total cars sold in India. Ford now wants to make up for lost time. Here are some of its plans:

  • Make India its small-car manufacturing hub, which will cater to the entire Asia Pacific region and Africa. Some 60% to 70% of Ford's total sales are expected to come from these two regions by mid-decade.

  • Launch several new small cars in the next three years.

  • Double capacity and ramp up export of small cars from the country. In 2012, the Figo -- Ford's main growth-driver in the country -- is slated to reach 18 new foreign destinations from the company's Chennai facility, which is undergoing expansion.

  • Last month Ford laid the foundation for a $1 billion plant with an annual manufacturing capacity of 240,000 cars and 270,000 engines in northwest India. This plant will start operating in 2014 and will focus mainly on small cars.

Don't take it easy, Ford!
Grabbing a share of the Indian small-car market certainly won't be an easy ride for Ford. Maruti Suzuki's Alto is the best-selling car not only in India, but the world! And don't forget Tata Motors (NYS: TTM) , which has the third-largest share in the small-car market. Tata's Indica model reported a 65% surge in sales last month, while sales of its cheapest car, Nano, were up 20%.

General Motors has already invested billions of dollars in India and is all set to roll out its fourth small car, the Sail, during the third quarter this year. Toyota Motor (NYS: TM) has begun exporting its compact models, such as Etios, from its Indian facility, while Honda Motor (NYS: HMC) believes opportunities for large vehicles are limited in India and is thus looking at compact cars to boost volumes. The Brio, launched late last year, constituted 60% of Honda's total March sales in India. In fact, India might soon overtake China as Honda's third-most important market.

The Foolish bottom line
India is clearly a hot spot for small cars, and competition is heating up. Given the market potential, I think there's room for plenty of automakers. Ford looks to be on the right track with its plans. To keep a tab on how Ford fights to get a bigger share of the pie, click here to add the stock to your watchlist.

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At the time thisarticle was published Neha Chamariadoes not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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