Ford, Mahindra agree on $275 million deal for India, emerging markets

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Ford Motor Co and Mahindra & Mahindra will form a joint venture in India valued at $275 million to produce and sell vehicles in the country and export to emerging markets, the two companies said on Tuesday.

The two companies have for months been negotiating the deal which will see Ford take a 49% stake in the new entity and end most of its independent local operations in the country, Reuters reported in April.

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 the country, and employees to the new entity, the companies said in a statement.

Under pressure from shareholders to make profits, Ford has been globally restructuring its businesses with an aim to save $11 billion over the next few years.

By shifting to a joint venture, Ford is changing its India strategy where it has long run an independent operation in a market dominated by Asian car makers like Suzuki Motor Corp and Hyundai Motor Co and where several others have struggled to make money.

“Strong alliances like this play a crucial role in assuring we continue to achieve our vision while at the same time staying competitive and delivering value to our global stakeholders,” Jim Hackett, Ford president and CEO said in the statement.

Ford’s two car manufacturing plants – one in Chennai in southern India and the other in Sanand in western India which was inaugurated in 2015 – will be moved to the new joint venture, the companies said. Ford will retain its engine plant at Sanand and its global business centre in Chennai.

The new entity, which will be operationally managed by Mahindra, will develop and sell Ford brand vehicles in India and export Ford and Mahindra brand vehicles to emerging markets.

“I think it’s a disappointment when I see Ford sitting at the passenger seat, while Mahindra drives, if that will be the arrangement,” said Gaurav Vangaal, senior analyst, automotive forecasting at consultancy IHS Markit.

“But looking at a global scenario of rapid transformation in powertrains and a shift to electric, this is a better way to mitigate investment risks,” he added.

The two companies expect to launch three new utility vehicles, starting with a midsize sport-utility vehicle (SUV).

Michigan-based Ford invested more than $2 billion in India over two decades but it has consistently struggled – it has a share of about 3% in a market where Suzuki’s local unit, Maruti, is the top player with a 50% share.

In India, Ford currently manufactures and sells its cars via its wholly owned subsidiary. In 2017 it formed a strategic alliance with Mahindra under which, among other things, they will develop new cars together, including SUVs and electric variants.