Chennai, July 28 (IANS) US car-maker Ford Motor Company, which has a major vehicle plant in Tamil Nadu, has announced it will invest $1 billion in Gujarat to build two plants. However, the decision does not seem to have upset or surprised the Tamil Nadu government that had invited the company with open arms to set up base here offering attractive tax incentives years back.


"We have been told that the company would save sizeably on freight costs if it has a plant in Gujarat as it can cater to the northern markets," a state government official told IANS on the condition of anonymity.

He categorically ruled out power and labour issues as the reasons for Ford to zero in on Gujarat.

"Power problem is present in all the states. The power situation in Tamil Nadu is set to improve soon. Similarly, the company has not complained about its labour," he said.

He cited Ford's decision to invest $72 million to expand its engine plant located near here to take the annual production capacity to 330,000 units from the current 250,000 units.

Ford currently has a vehicle plant near here with a capacity to roll out 200,000 units per annum.

Ford and the Gujarat government signed a Memorandum of Understanding (MOU) at Gandhinagar Thursday, whereby Ford would invest around $1 billion to build an integrated state-of-the-art vehicle manufacturing facility and an engine plant at Sanand in Gujarat.

The proposed facilities would include stamping body, paint and assembly operations for vehicle manufacturing, as well as machining and assembly operations for engine manufacturing.

The vehicle plant will have an initial annual capacity of 240,000 units, and the engine plant will have an initial annual capacity of 270,000 engines. Ford's investment will also create 5,000 jobs at the new facilities.

The manufacturing operation will be built on a 460-acre site, with adjacent land protected by the local government in order to attract and locate automotive suppliers within close proximity of both plants.

The new facilities will allow quick access from operations at the new manufacturing site to the heartland of the critical north and western India regions, where the largest share of the country's passenger car industry exists.

Construction of both plants will begin later this year, with the first vehicle and engine scheduled to come off the line in 2014.