Ford has entered into a Joint Venture deal with Mahindra & Mahindra in last attempts to leverage its Indian Operations in India, after consecutive losses over the years of business. Ford first stepped in the Indian automobile market in the mid-1990s and has been making losses since then.
Ford Motors is one of the most renowned automobile companies in the world. It manufactures automotive vehicles like cars, trucks buses as well as automobile parts. However, Indian markets have proven to be a poor ground for its business. Ford incepted its automobile business in India in the 1990s. However, the company has not been able to bag any significant profit but only losses over 20 plus years of operations in the country.
Thus, as a last hopeful attempt, Ford has not entered into a JV agreement with India’s Mahindra & Mahindra industrial group. As per the deal, Ford will transfer almost all of its Indian assets, valued at around Rs. 1925 crore.
The deal empowers to hold 49% stake of the total pool along with an additional investment of Rs. 632 crores (apart from existing assets). Further, Mahindra will invest Rs. 657 Crores and own rest of the 51% stake in the JV. The new company formed from the JV will assume ownership of Ford’s India operations including personnel and assembly plants in Chennai and Sanand, Gujarat.
However, the deal excludes Ford’s engine plant in Sanand, Global Business Services unit, Ford Credit and Ford Smart Mobility. But, a total debt of Ford valuing Rs. 636 crore will be transferred to the JV company. Although ford has not provided details about its investments in India, however, it has said that it has borne an impairment loss of $900 million with the deal.
The deal is the brainchild of a strategic alliance that took place between the two companies in September 2017. The joint venture is expected to be operational by mid-2020, subject to approvals from the government and relevant regulatory authorities. The two companies have assured the employees that there will be no job losses due to the alliance.
The deal encompasses terms which will enable Mahindra to produce a range of its flagship vehicles like Scorpio, XUV500 and Bolero from Ford’s existing plants. Thus, eradicating the need for the company to set up new factories in a few forthcoming years.
Of the total production capacity of 1.2 million units a year, 800,000 will be owned by Mahindra & 400,000 will be owned by Ford.
The companies have overruled the cross retailing of products from their dealerships & the products will be sold through an independent line of dealerships.
However, the JV will still assist the two beneficiaries to enjoy up to a 75% common line of spare parts and products. This will not only help Ford to grow in India & exporting its products to Ford entities globally but will also sport independent badges for both companies.
As a part of the deal, the two companies are working on a mid-size SUV called C-SUV & there are discussions regarding a smaller vehicle called B-SUV and also a multi-purpose vehicle (MPV). Further, Ford is looking forward to electrifying its sedan ‘EcoSport’ with Mahindra supplying Bharat Stage VI grade engine.
Anand Mahindra, chairman, M&M 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.”