NEW DELHI — When Ford Motor Co. built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom — the next China.
The economy had been liberalized in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy. Rising disposable income would help foreign carmakers to a market share of as much as 10 percent, forecasters said.
It never happened.
Last week, Ford took a $2 billion hit to stop making cars in India, following compatriots General Motors and Harley-Davidson Inc. in closing factories in the country.
Among foreigners that remain, Japan’s Nissan Motor Co. and even Germany’s Volkswagen AG each hold less than 1 percent of a car market once forecast to be the third largest by 2020, after China and the United States, with annual sales of 5 million units.
Instead, sales have stagnated at about 3 million cars. The growth rate has slowed to 3.6 percent in the last decade versus 12 percent a decade earlier.
Ford’s retreat marks the end of an Indian dream for U.S. carmakers. It also follows its exit from Brazil announced in January, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.
Analysts and executives said foreigners badly misjudged India’s potential and underestimated the complexities of operating in a vast country that rewards domestic procurement.
Many failed to adapt to a preference for small, cheap, fuel-efficient cars that could bump over uneven roads without needing expensive repairs. In India, 95 percent of cars are priced below $20,000.
Lower tax on small cars also made it harder for makers of larger cars for Western markets to compete with small-car specialists such as Japan’s Suzuki Motor Corp. — controlling shareholder of Maruti Suzuki India Ltd., India’s biggest carmaker by sales.
Of foreign carmakers that invested alone in India over the past 25 years, analysts said only South Korea’s Hyundai Motor Co. stands out as a success, mainly due to its wide portfolio of small cars and a grasp of what Indian buyers want.
“Companies invested on the fallacy that India would have great potential and the purchasing power of buyers would go up, but the government failed to create that kind of environment and infrastructure,” said Ravi Bhatia, president for India at JATO Dynamics, a provider of market data for the auto industry.