Ford Indias Chennai plant exports engines including this shipment for Thailand

Ford India's Chennai plant exports engines including this shipment for Thailand

Ford on Thursday (28 July, 2011) said it would spend US$1bn building a second vehicle assembly and engine plant in India to meet growing local and export demand. The official announcement, after Ford signed an agreement with the Gujarat state government on Thursday, followed media reports, citing unofficial sources, on Wednesday.

"Ford has very aggressive expansion plans in India and in Asia Pacific and Africa," and this investment in the western state of Gujarat "will be important in realising our growth strategy," the president of Ford Asia Pacific and Africa, Joe Hinrichs, told news agency AFP.

The new factory in Sanand, 40km (25 miles) from Gujarat's main city Ahmedabad, will employ 5,000 and be Ford's second in India after its vehicle and assembly plant in the southern port city of Chennai.

The Chennai assembly plant makes the Figo, an updated and restyled previous-generation Fiesta for both domestic and export markets and last month began making the current Fiesta in both hatchback and sedan form. An adjacent plant makes petrol and diesel engines.

AFP noted that Gujarat has emerged as an investment magnet for car and other manufacturers with its business-friendly policies.

Modi said in a statement that Ford's investment "will further strengthen the capability of Gujarat as an auto hub."

The Gujarat operations will have initial annual capacity of 240,000 vehicles and 270,000 engines. The Chennai plant near can assemble up to 200,000 cars and will raise its engine making capacity to 330,000 by next year.

Ford's announcement takes its spending in India to $2bn. It is building or planning to build seven factories in Thailand, China and India.

The Gujarat plant will help boost global Ford sales by almost half by mid-decade to 8m vehicles a year. Up to 70% of growth is seen coming from the Asia Pacific and Africa regions over the next 10 years.

"This is an investment in the future of Ford globally," Hinrichs added.

The Figo was launched in India last year and Ford has sold over 100,000 units, tripling its volume there. It still has only 3% of the market which grew almost 30% last year to 2.5m vehicles. The Figo was part of Ford's goal of adding eight models to its India lineup by 2015, AFP said.

Ford would give no targets for future Indian growth but said it was "bullish."

Work at the Gujarat site starts this year with the first vehicle and engine expected off line in 2014.

India is "working very hard to control inflation, but we don't see the (market) fundamentals changing," said Ford India president Michael Boneham.

"The ride up won't be in a straight line," he said. "But growth will be order of the day with more people driving, infrastructure improving, incomes rising."

With just one in 10 households in urban areas owning a car and one in 50 in rural areas, India remains a highly under-penetrated market, AFP noted.