Ford Motor Co has agreed to move most of its assets in India into a joint venture with Mahindra and Mahindra after its two-decade-old effort to gain a sizeable market share in the world’s fourth largest car market did not bear fruit.
Making a joint announcement on Tuesday, Anand Mahindra, chairman of the Mahindra Group, and his Ford counterpart Bill Ford — joining him through video-conferencing from his Dearborn headquarters in Michigan, USA — touted the deal as a “winwin” for both the companies.
The new company will purchase most of the automotive assets of Ford India Pvt Ltd (FIPL), including two vehicle manufacturing plants, but excluding the engine making plant in Sanand, Gujarat.
The enterprise value of the assets is pegged at?1,925 crore. After adjusting for FIPL’s debt of? 636 crore, which the new company will assume, Ford and Mahindra will pay? 1,289 crore in cash to FIPL. Mahindra will pay 51% of this, or? 657 crore, and Ford will put in the remaining? 632 crore.
Ford is slated to take an “impairment charge” after the third quarter, Ford CEO Jim Hackett said.
Mahindra’s automotive business will not form a part of the JV and will continue under the M&M flagship company. The deal seemed to be tilted in favour of the Mahindra group as it will own a controlling 51% stake in the company with Ford holding the remaining 49%.
Both the companies will have equal representation on the board, but Mahindra will get to choose the chairman who will have the casting vote. The management will be appointed by the Mumbai-based company in consultation with its US partner.
“This partnership does not mean we’ll retreat (from India). This is about winning in India,” Hackett said when asked whether the company is giving up on India. The transaction is expected to be completed by mid-2020.
Both Ford and Mahindra will continue to have their separate brands and dealerships in India, but vehicles will be co-developed and the companies will strategically manufacture vehicles for each other.
“This JV will grow Ford’s presence in India as well as in emerging markets,” said Ford. “It will also enable the Mahindra brand to expand its global presence, making this alliance a perfect win-win.”
The US carmaker, in 1995, was one of the first foreign carmakers to enter India after liberalization, with its Ford Escort sedan. Ford has invested more than $2 billion in the country so far, according to reports. However, the company failed to emerge as a major contender in a market dominated by players like Maruti Suzuki and Hyundai.
In the Indian PV market, Mahindra is the third-largest player with an 8.1% share while Ford is a distant seventh with a 2.7% share. Ford’s two plants have a total capacity to manufacture 440,000 vehicles annually. Mahindra has an installed capacity to produce over 500,000 vehicles annually. Both the companies together manufactured 528,000 vehicles in FY19.
Source: Economic Times