NEW DELHI - Ford Motor Company last week exited India, reflecting the challenges faced by Western auto firms doing business in India's extremely competitive and cost-conscious market, which Asian carmakers continue to dominate.

Ford announced on Sept 9 that it would stop manufacturing cars in India, the world's fastest-growing economy.

The company said it would "wind down an assembly plant in the western state of Gujarat" by the end of the year, and a vehicle and engine manufacturing plant in the southern city of Chennai by June next year.

Ford's exit was preceded by that of other American firms.

Harley-Davidson last year decided to call it quits in India because of low demand, while in 2017, General Motors ended its operations here as part of a strategy to get out of unprofitable markets.

Analysts said Ford had been unable to crack the Indian market and had not focused enough on the entry-level small-sized car segment, among other issues.

"Ford's exit is a realisation by Western carmakers that they can't quite hack the highly cost-sensitive Indian car market, which is controlled with a vice-like grip by a handful of automakers," said Mr Hormazd Sorabjee, editor of Autocar India, an automotive publication.

"Global carmakers are enticed by the potential of the Indian market, but quickly realise it's the most challenging and hard to make profits in. The market structure, which is skewed towards compact cars, is out of synch with the global portfolio of most automakers."

The decision by Ford to exit India did not surprise auto experts, who watched as the company struggled to increase market share. By 2019, it had just 2.8 per cent of the market, with losses of around US$2 billion (S$2.7 billion), even after over two decades of being in India.

Maruti Suzuki has around 48 per cent share of India's car market, followed by Hyundai, with 20 per cent.

Mr Saket Mehra, partner and auto sector leader at Grant Thornton Bharat, an assurance, tax and advisory firm, noted that initial prices for the company's low-end models started from above 600,000 rupees (S$11,000). India's leading car company, Maruti Suzuki, charged half that price for its entry-level model.

"The decision by Ford to shut its production in India has not come as a shocker as the company was not able to increase its market share against Asian automakers. Product competitiveness in terms of pricing, designs and features has been rigorous, which the US auto major was not able to meet," said Mr Mehra.

India's auto sector has boomed along with the Indian economy, as the rapidly growing middle class migrated from motorbikes as the main mode of transport to entry-level cars, upgrading eventually to sedans and sport utility vehicles.

But while India remains the fourth-largest manufacturer of cars, a slowing economy that preceded the Covid-19 pandemic impacted car sales along with tougher emission standards that pushed up prices.

Growth in the passenger vehicle segment was 3.6 per cent in the last decade, compared with 10.3 per cent in the previous decade.

And the pandemic has only exacerbated troubles.

The sale of passenger vehicles in 2021 is the lowest in six years, according to the Society of Indian Automobile Manufacturers.

"Covid-19 also shut down export markets and Ford didn't know what to do with the infrastructure even as inventories kept piling," said Mr Rishi Sahai of Cogence Advisors.

"It's more a reflection of Ford than the market. It is a competitive market. You need to have the right product portfolio, right pricing and marketing strategy."

He said Ford got some things right. Its SUV, the EcoSport, was popular, but even so, faced tough competition as other car manufacturers turned their attention as well to the utility vehicle segment.

Asian carmakers also attract customers by including many features in even their low-end offerings, such as reverse cameras and cruise control.

Still, the pandemic's impact is being felt as potential buyers postpone decisions, like upgrading from their present car. The industry has also been hit by supply chain disruptions, including a microchip and semiconductor shortage.

"The passenger vehicle industry will face a demand-supply mismatch in coming months. The production volumes will be lower and hence, the festive season demand will not be met as inventories with dealers are already low," said lead analyst Vahishta Unwalla at credit ratings agency Care Ratings.