(Photo: REUTERS/Prashant Waydande)
A joint $275m venture between car manufacturers US Ford Motor Co and India's Mahindra & Mahindra will lessen risks for Ford's local business by cutting costs in vehicle development and production for emerging markets while giving Mahindra access to Ford's global market and technology.
In India, Ford currently makes and sells its cars through its fully owned subsidiary.
Ford, which has long been on a solo operation in India is in a change mode, as part of its global restructuring.
The timing could not have been more perfect as this movie is just in time for Prime Minister Narendra Modi's administration revamping local manufacturing by offering cheap loans and slashing taxes to increase car sales.
The company is targeting to save $11 billion over the next few years brought about by pressure from shareholders for profits.
However, Ford President and CEO Jim Hackett said the partnership was "not only a fitness objective" but also an opportunity for the automaker to gain a platform to expand in India.
Ford, after investing more than $2 billion in India over two decades, in an exchange filing, indicated that Ford will have an $800 to $900 million non-cash charge for the writedown of its Indian assets.
Gaurav Vangaal, senior analyst at automotive forecasting and consultancy IHS Markit, said that though it is disappointing to "see Ford sitting at the passenger seat, while Mahindra drives" this is "a a better way to mitigate investment risks" in the age of "rapid transformation in powertrains and a shift to electric."
Saved capital will go to Ford's more urgent and potentially profitable endeavours to counteract the global auto slump like defending its US truck franchise or putting more money in its operations in China.
Ford and Mahindra's negotiation for months ended with the agreement wherein Ford will take a 49% stake in the new entity.
This percentage will stop most of Ford's independent operations in India.
The deal's terms is likely to get finalized by mid-2020.
After finalization of that deal, Ford will hand over its local car manufacturing plants, employees and local automotive assets to the new entity operationally managed by Mahindra.
Mahindra will also be in charge of bringing its Indian market knowledge, sourcing, and supply chain to the partnership in exchange for Ford's global reach and technology.
The Michigan-based company has only about a 3% share in the Asian car market dominated by Asian carmakers like Suzuki Motor Corp and Hyundai Motor Co.
Anand Mahindra, chairman of Mahindra Group said, "These synergies lead to sizable business opportunities" which pave the way for leveraging brand and distribution assets, creating new products, entering new markets and seizing the leadership.
Both companies expect to produce three new utility vehicles starting with a midsize SUV.
They will also develop electric vehicles for emerging markets.
Ford will still have its global business center in Chennai in the south and its engine plant at Sanand in western India.
Ford also forged a partnership with Volkswagen for the two automakers' ventures in autonomous vehicles, commercial vehicles and electric cars.
