 You're watching News Made Easy and I'm on Indi Chakravarthy and today I'm going to be talking about why is Ford Motors quitting India. There's an important question but it's not only about Ford. Of course the reasons being given range from the fact that Ford has never Indianized its cars. So it never really understood the Indian market too. The fact that millennials today don't want to buy cars. They'd rather take an Ola and an Uber and of course in metros, metros have come, right? Public transport has improved. So that is one reason why the car market has declined but that is not the key reason. The key reason is something else. But before I go there, I want to talk about Ford Motors itself. It was started by Henry Ford, right? You must have heard about him. Pioneer of what has come to be called Fordism, right? He started and popularized the assembly line system by which people with workers with relatively low skills could work on specific set of machines and do only one particular task and what ended up being produced is a pretty complex machine at relatively low cost. So it started with cars, went on to other gadgets and machines itself and various kinds of durables. The assembly line became a global system for industrial production even in socialist countries. But Ford was also famous for one other thing that he did which is in 1914 he doubled the wages of workers. He said that workers will be given a $5 wage per day. $5 in 1914 is equal to $130 today. How does that compare in 2021 equivalent terms? As I told you, the equivalent value of the Ford 1914 wage was $130. The minimum wage in the US today for someone who works 8 hours is $58. That means Ford was paying more than double in real terms than what US employers pay today to their workers. There's one more thing that Ford did which is he introduced the 40 hour 5 day week, the 40 hour 5 day week. Why did he do that? He said that unless workers have leisure and time to spend with their families, unless they have money, they're going to buy the things that they produce. Effectively if workers don't buy the things that they produce, capitalism is bound to fail because it will fail to create a demand for its own products and therefore it will not grow. This is not socialism. This is an important thing to understand. This is not socialism. This is pure capitalism. Capitalism with a vision which understands that unless there is demand, there can be no capitalist growth. So the question is how many people in India can actually buy cars because if they can't buy cars, car market, car industry will not grow. So let's assume that someone buys the cheapest car and the EMI they'll end up paying is about 5,000 rupees. Equal monthly installments to buy the cheapest car in India. Who can buy that? At least a household income of about 40,000 rupees or 5 lakh rupees a year. A household income of two odd people working in a family. At least 40,000 rupees has to be there for them to be able to pay 5,000 rupees in EMI every month on a car. How many households are able to earn that? CMI's data tells us that only 23 million households in India or about 7-8% of the total number of households in India are able to earn that much. And they are the people who are the core of the car market in India. How many cars have been produced in the last 10 years? In the last 10 years alone, 24 million cars have been produced. In the last 15 years, 35 million cars have been produced. Now think of the fact that some of that would have been bought by the government. Some of it would have been bought by taxi owners. But even then you can understand that we've reached a saturation point where you will find very few buyers for cars. And let me tell you, this is not a new phenomenon. Since 2011 and here I'm putting out a graph with quarterly data. Every three months you can see that there has hardly been any growth in the car market. These are car production numbers. And you can see it in 2018, there hardly been any growth. I mean, you can also see that after mid-2018, there's been a decline. And this was before COVID came. Car sales started declining after 2018 before COVID came. And of course, that's the COVID collapse in April to June quarter because factories were shut. But even after that, the recovery has still not taken us back to that level. And look at this. After July, in August, car sales have dropped again. The reason for this is very simple. The car market in India is saturated because India's middle class is small, is getting smaller, and their buying power is shrinking. And this is not just the car market. This is true for homes. This is true for other consumer durables in India as well. So unless there are any quality reduces, unless the size of the buying classes increases, India's economy is doomed to be in this space where there is no demand and no growth. That's the show today. Keep watching News Click.