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TATA Motors to acquire Ford’s Gujarat manufacturing plant

India’s Tata Motors has agreed to buy a Ford manufacturing plant in the western state of Gujarat for 7.26 billion rupees ($91.5 million).

The deal comes as Tata moves to ramp up production of its cars to meet demand.

The deal between Tata’s electric car subsidiary and the US carmaker’s Indian unit covers land, machinery and all “eligible employees”.

Ford halted production in India last year after struggling to generate profits there for more than two decades.

“As our production capacity is approaching saturation, this acquisition is timely and beneficial to all parties involved,” Tata Motors said in a statement.

The parent company of Britain’s Jaguar Land Rover added that annual production at the Sanand plant would initially give it a new capacity of 300,000 vehicles a year, which could be increased to 420,000.

The announcement marks an important step forward in Ford’s efforts to restructure its Indian business, said Ford transformation director Steve Armstrong.

In September last year, Ford said it would close its Indian car plants as part of a move that would cost it around $2 billion.

The American automaker said at the time that the decision would affect about 4,000 workers.

Ford’s India operations had posted losses of $2 billion in the previous decade.

The significant reduction in Indian operations was in stark contrast to the company’s previous ambition to make the country one of its biggest markets.

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Analysis by Nikhil Inamdar, Indian Business Correspondent

Foreign car manufacturers have found it difficult to succeed in India. Ford’s departure is just the latest in a series of departures.

Companies such as General Motors, Volkswagen-owned MAN Trucks and even iconic motorcycle maker Harley Davidson are among the firms that have stopped manufacturing in India in recent years.

Earlier this year, Japanese auto giant Nissan decided to pull its Datsun small car brand from the country due to poor sales.

While GM and Harley Davidson said the decisions were part of their global strategic shift away from certain markets, analysts also point to lackluster revenue and a lack of economies of scale in India.

India is still seen as a high-potential auto market, but sales have fallen to a decade-low due to slowing economic growth, weak labor markets, higher fuel prices and pandemic-related disruptions.

The country’s passenger vehicle market has stagnated at around 3 million units per year for the last half decade.

In contrast, more than 20 million cars are purchased annually in China.

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However, some Indian automakers have seen an increase in demand. One of Tata’s rivals Mahindra and Mahindra said on Friday that demand for its vehicles was outstripping production as people rushed to buy its popular SUVs.

This helped boost its quarterly earnings as sales of its passenger vehicles rose 74% from a year earlier.

“We have started programs to expand capacity, but we did not anticipate this kind of demand,” said Mahindra and Mahindra chief executive Rajesh Jejurikar.

Tata Motors is the automotive division of the Indian multinational conglomerate Tata Group.

In the UK, Tata Motors bought Jaguar and Land Rover from Ford in 2008, merging the British luxury car brands into one company.

The Tata Group owns a number of major businesses around the world, including Tata Steel Europe, which includes the former British Steel assets in the United Kingdom.

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