Mumbai: The yet-unnamed joint venture of Mahindra and Mahindra Ltd, its subsidiary Mahindra-Renault Pvt. Ltd, and Nissan Motor Co. that will make four lakh vehicles a year from 2009, will be a contract manufacturer with the three companies equally sharing the capacity, said Pawan Goenka, president (automotive), Mahindra and Mahindra. He added the company was in talks with Nissan to market its cars in India similar to the venture it has with Renault for the Logan sedan.
The joint venture company would not develop or sell cars on its own, said Goenka. The three companies, which would market the products made by the venture, will pay a fee to it in proportion to the goods manufactured.
“Mahindra’s greatest advantage is to get access to the technology of Nissan and Renault through this plant in Chennai,” said Umesh Karne, senior research analyst with Emkay Share and Stock Brokers Ltd. “The joint venture company will be developing cost-advantageous products. So, royalty (fee for manufacturing) would not be an issue.”
Global players such as Fiat SpA and Nissan Motor Co. are entering into contract manufacturing alliances with Indian companies to gain from the low cost of manufacturing in the country and benefit from economies of scale.
Nissan Motor Co. has a tie-up with Maruti Udyog Ltd, which sells one of every two cars sold in the country, to make 50,000 units a year of a small car, which it will export to Europe. Fiat SpA and Tata Motors Ltd are spending Rs4,000 crore to build a factory in Pune which will roll out models designed by the two companies.
Mahindra and Mahindra will hold a 50% equity in the contract manufacturing unit; the chairman and CEO will also be its appointees. Nissan and Renault will work out how to split the other half between themselves.
“Not all the investment is through equity,” said Goenka. “Facilities specific to models will have to be paid for individual companies.”
He added that investments in facilities specific to the models would have to be paid for by the company launching that model. Such facilities include tooling and welding lines. Processes such as stamping (of sheet metal into frames) and painting are common across models.
Mahindra and Mahindra will make sports utility vehicles in the new plant, including the new model it is currently designing, said Goenka. Renault will make passenger cars which will be sold through Mahindra-Renault, while Nissan is looking to set up a different distribution chain.
“Nissan will also get a partner in India to do the selling,” said Goenka. He added that the Japanese firm was speaking to several companies including M&M for this.
Companies such as Volkswagen AG and Nissan are scrambling to get a toehold in India, the second fastest growing passenger car market in the world with annual sales of over one million units.
Only seven out of every 1,000 Indians owns a car, compared with 12 in neighbouring Pakistan. An economic expansion of 9-9.4% last year and more than 8% this year is putting more money in the hands of the people and increasing demand for passenger vehicles.
The number of passenger vehicles sold in India will increase to 2.2 million units a year by 2010 from 1.4 million now, according to the Society of Indian Automobile Manufacturers.