Car economics and IT investment

By C. R. L. Narasimhan

CHENNAI, APRIL 14. Towards the end of March, Ford Information Technology Services India (FTSI) set up a software centre at the Tidel Park, Chennai in collaboration with three software companies. Mr. Vaughn Koshkarian, vice president of Ford Motor Company and president of its Asia Pacific operations, was in Chennai for the inauguration.

Speaking to The Hindu informally he said the new software venture would contribute to his company's operations in the Asia-Pacific region and even beyond. ``We view it as part of Ford Motor Company's IT infrastructure,'' he said. Its scope will not be restricted to India. In many ways the IT centre will be similar to the accounting centre which Ford has already set up in India. It takes on the work of Ford's operations in many countries, well beyond India.

Ford, like many other large multinationals, has set considerable store by Indian software talent and its potential. Among the major automakers which set up production bases in the country Ford has been the first to think of using India's acknowledged IT expertise.

The development is significant in another way. This has to do with the commercial viability of its mainline activity, the passenger car operations in the country. Will the betting on IT and IT enabled services make up for the bleakness on the automobile front?

There is a glut in passenger car production capacity within India and abroad. Domestic car sales have been uneven. Even immediate future trends are inscrutable. For domestic auto makers the goal of achieving economies of scale remains a distant dream. Can they export their way to financial viability?

No less a person than Mr. Jacques Nasser CEO of Ford Motor Company, when asked by this correspondent some months ago, was of the view that exports as a way out was not possible, given the inadequacies in India. He did not foresee India emerging as a production base for cars. But he was very bullish on Indian IT talent. Thus when Ford's Ikon as well as Hyundai's Santro and cars of other manufacturers are shipped abroad, pure commercial considerations apparently take a back-seat to the needs of meeting some preset export obligations. In any case, no car maker has so far shown that it makes profits on exports.

Car operations

So what about the car operations? Ford India unlike Hyundai or Maruti has not declared its financial results. Mr. Koshkarian, however, hastened to say that they were ``cash positive'' and that as a company they are ``heavily focussed on cash-flows''. ``We are getting good margins on the Ikon which is doing extremely well in its segment'', he said. Ford India is currently operating one shift at its Maraimalai Nagar plant and it is fairly easy to expand to two shifts and even three, the last with a little additional investment. ``In the longer term we really have to expand and add to our bottomlines''.

What about new product lines? Although Ford India has the capacity, it will not get into cars that are not compatible with it its primary skills and capabilities. Secondly, it will not get into market segments that are not viable for its shareholders. Both shareholder and customer interests dictate Ford's strategy. Introduction of a new model will also be guided by that. According to Mr. Koshkarian, the challenge before Ford in India is to find, even define a segment in which it can give special value to the customers and still make reasonable returns.

Mr. Vaughn Koshkarian

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