After Ford Motor Co tripled sales in India with the introduction of the Figo hatchback last year, demand for the entry-level model is now falling with the company counting on persuading customers to buy a car that may cost twice as much.
Deliveries of the Figo, which makes up about 80 per cent of the carmaker's sales in India, were down a second straight month in May, on higher interest rates and fuel costs. The company is now planning to introduce a new Fiesta subcompact model costing around Rs700,000 in a bid to return to growth in the second half, according to industry watchers.
Ford is looking to widen its appeal beyond the Figo and woo 'Ajay' - its moniker for young aspirational buyers, with industry car sales slowing down to the lowest in two years.
The Reserve Bank of India hiked interest rates 10 times since the start of 2010 to gain a grip over inflation, which has hurt demand for cars in a country where the market is overwhelmingly loan driven. Loans fund 80 per cent of all car purchases in India.
According to Michael Boneham, managing director and president of the Dearborn, Michigan-based carmaker's India unit, customers are delaying purchases and turning to diesel models leading to a supply demand mismatch.
Boneham said in a 2 June statement that there was definitely a slowdown in the buying decisions of buyers.