M&M to steer Ford’s India operations
Form 51:49 JV to cut risks and costs
Ford Motor’s India innings has come full circle. Two decades after the Michigan-based company ended its joint venture (JV) with Mahindra and Mahindra (M&M), the company has done a pivot — this time to hedge its risks in a market that is promising enough not to exit but where it has struggled to make deeper inroads despite a long presence.
Following two years of courtship, the two automakers said on Wednesday that they had agreed to tie the knot by stitching a 51:49 JV, with M&M in the driver’s seat. With this move, Ford will cease almost all the standalone operations in India.
“It’s a new era of collaboration for Ford and Mahindra,” Ford Chairman Bill Ford said in a video conference from Detroit. “Together we have the opportunity to make lives better in India, emerging markets, and the world. In today’s changing world, partnerships have the capability to make one more competitive. The alliance is a perfect win-win.”
Putting speculation about Ford’s exit from India to rest, he said, “Ford will continue to make vehicles in India, for India and the world. We remain deeply committed to India.”
Under the terms of the deal, which is likely to be finalised by mid-2020, Ford will transfer its local automotive assets, including both its car manufacturing plants in Chennai and Gujarat, and employees to the new entity. The JV plans to introduce three new vehicles under the Ford brand, beginning with a midsize SUV that will share underpinnings with the Indian partner. Ford will retain its engine plant at Sanand and its global business centre in Chennai. The new entity, which will be operationally managed by M&M, will develop and sell Ford brand vehicles in India and export Ford and Mahindra brand vehicles to emerging markets.
Anand Mahindra, chairman, Mahindra Group, said, “The new company being formed today is built on the best foundations -- friendship and synergy. It’s a pleasure to be working again with Ford.”
The new company, he said, would bring scale and skill. Citing an instance of scale, Mahindra said the combined sourcing scale of the new entity would be 1.3 times M&M’S current scale and three times that of Ford. “This will be a game changer. It will unlock opportunities for both,” said Mahindra, adding that Ford’s access to new technology and reach in emerging markets will be valuable for the company.
Ford will gain from M&M’S cost competitiveness and frugal engineering. The new entity, he said, would be Ebitda (earnings before interest, tax, depreciation and amortisation) positive from the first day.
Ford has been globally restructuring its businesses with an aim to save $11 billion over the next few years. It was one of the first global car companies to enter India when the economy opened up in the early 1990s. The company had first set up shop in India in 1926 but shut down in the 1950s.
“Together we feel we can create a strong powerhouse,” said Jim Farley, president of Ford’s new business and technology. The JV will allow Ford not only to sustain its business in India but bring value engineering on a larger scale and create a meaningful portfolio of products for India and emerging markets, he said.
“We have been working together for two years and have made very good progress. Based on the confidence we have in our chemistry, culture and the benefits, we have decided to tie the knot,” said Pawan Goenka, managing director at M&M.
Analysts said the deal was likely to benefit both the companies. Mahantesh Sabarad, head of research at SBICAP Securities, said, “The companies are hoping to have a lot of synergy, particularly on the costs side. For Ford that has been making losses at PAT (profit after tax) level, if not at Ebitda level, it’s a mechanism for the global entity to curtail its investment in India.”
The companies seem to have taken a leaf out of Tata Fiat JV even as they have tried to learn from the mistakes Tata Motors and Fiat made, he said.
In January 2006, Tata and Fiat first signed a pact for a joint distribution agreement as part of which they established a chain of joint dealerships. Six months later, the duo got into an equal joint venture for making cars, engines and transmissions. While the manufacturing JV paid off, the joint distribution had to be called off in 2012 owing to multiple issues. Mahindra and Ford will continue to have separate sales channels.
“The two have been in partnership before, so that helps,” pointed out Rakesh Batra, an industry expert. But getting the product strategy right would be the most crucial aspect of the JV, as design and developing common platforms for multiple geographies can be a big challenge, he said.