Realignments in the auto sector continue, with Mahindra and Mahindra announcing on Tuesday that it has signed a definitive agreement with Ford Motor Company, the fifth largest automaker in the world, to jointly develop, market and distribute Ford brand vehicles in India. While M&M will own a 51% controlling stake in the JV valued at $275 million (Rs 1,925 crore), Ford will hold 49%.
Global automakers have been struggling to make profits in India, given that around half the market is controlled by Suzuki. The joint venture will also target other high-growth emerging markets around the world. Ford was among the first global automakers to enter India in 1995.
Globally from Honda Motor Co to Mercedes Benz to Toyota, almost all major brands have formed alliances of the kind announced by M&M on Tuesday in their bid to meet customer expectations and yet remain profitable. This partnership makes sense given that one in three future vehicle will be sold in India and other emerging economies. The joint venture will have a distinct product portfolio with shared platforms, powertrains and newest technology.
As part of the agreement, Ford will transfer its India operations, including its personnel and assembly plants in Chennai and Sanand. Ford will retain the Ford engine plant operations in Sanand as well as the global business services unit, Ford Credit and Ford Smart Mobility. The joint venture will be responsible for products in India and exports to other countries.
The joint venture is the next step in the strategic alliance forged between Ford and Mahindra in September 2017 and is expected to be operational by mid-2020, subject to regulatory approvals. The joint venture will be operationally managed by M&M, and its governance will be equally composed of representatives of Mahindra and Ford.
Anand Mahindra, chairman, Mahindra Group, said, “Mahindra and Ford coming together is a testament to the long history of cooperation and mutual respect between the two companies. Our combined strengths — Mahindra’s expertise in value-focused engineering and its successful operating model, and Ford’s technical expertise, global reach and access to future technology — are a potent recipe for success. At its core, the partnership will be driven by the shared values of both companies, which are focused on caring for our customers, associates and our communities”.
According to Bloomberg, Ford sees an impairment charge of $800 million-$900 million during the third quarter related to fixed assets in India automotive operations. According to Pawan Goenka, managing director of M&M, there is likely to be a debt transfer on Ford deal to the tune of Rs 636 crore following the joint venture. Ford will continue to own the Ford brand, and its branded vehicles will be distributed through the current Ford India dealer network. Mahindra will continue to own the Mahindra brand and operate its own independent dealer network in India.
Bill Ford, executive chairman, Ford Motor Company, said, “We remain deeply committed to our employees, dealers and suppliers, and this new era of collaboration will allow us to deliver more vehicles to consumers in this important market. We are going ”. Ford is also planning to invest more in India in coming course of time.
Commenting on the JV, Pawan Goenka said, “Emerging economies including India are expected to account for one in three future vehicle sales”. The joint venture expects to introduce three new utility vehicles under the Ford brand, beginning with a new mid-size sports utility vehicle that will have a common Mahindra product platform and powertrain.
Another area of focus for the joint venture will be electric vehicles. Goenka said, "We are planning to build a electric vehicle by using Ford Aspire platform and our powertrain technology for electric vehicles, it will be manufactured in Ford plant but will be shared by both the companies." As a part of the JV, both the companies are planning to launch two new vehicles next year. Ford and Mahindra will collaborate to develop vehicles to support the growth of sustainable mobility across emerging markets. "We hold 14%combined market share now after this joint venture", Goenka added.
Mahindra also informed that the joint venture will not lead to any kind of job losses in future. The joint venture will use the Ford brand distribution network in emerging markets to extend support for export of Mahindra products, in addition to Ford branded vehicles. Exports today form about 7% of Mahindra’s auto business revenues and its products are exported to South Africa, Nepal, Bangladesh, Sri Lanka and Chile, among other nations and areas.