Mumbai: Mahindra and Mahindra Ltd, (M&M), will buy out Renault SA from its five-year- old joint venture and try to revive the flagging sales of the Logan, the no-frills sedan that has failed to make a mark in the booming Indian car market. The Indian company did not disclose how much it would be paying to buy its partner’s 49% share in Mahindra Renault Pvt. Ltd, the loss-making joint venture.
Partnership ends: A file photo of Renault CEO Carlos Ghosn and M&M chairman, managing director Anand Mahindra at the Logan’s launch. Indranil Mukherjee / AFP
Renault will continue to supply key components to M&M while the latter will pay the French company a royalty for every Logan it sells after the two firms part ways. The Logan will be repositioned and re-engineered in the coming months.
A senior M&M official said that full ownership will allow the company greater flexibility to meet the changing needs of the Indian car market.
“The new arrangement allows us to bring changes faster and capture the needs of the Indian market effectively,” said Pawan Goenka, president, automotive and farm equipment sectors at M&M.
The Anand Mahindra-led company says it will adopt a three-pronged strategy to revitalize the Logan.
Rajesh Jejurikar, chief executive officer of the automotive division at M&M, said the company would immediately take steps to restyle the Logan, cut its dependence on imported components (currently at 60%) and reduce the length of the vehicle to get excise duty benefits.
Industry experts say the higher excise duty on sedans compared with small cars helped car makers such as Maruti Suzuki India Ltd, Hyundai Motor India Ltd and Tata Motors Ltd and harmed the likes of M&M.
As sales volumes of the Logan plummeted, losses at the joint venture firm mounted. In fiscal 2008-09, Mahindra Renault posted a loss of Rs490.21 crore on a gross turnover of Rs741.17 crore.
Renault is pursuing other ventures in India.
Renault and its Japanese alliance partner Nissan Motor Co., in which it has a 44% stake, are investing Rs4,500 crore over seven years in a manufacturing unit in Chennai, while Nissan will roll out its Micra hatchbacks from the plant in July.
The Renault-Nissan alliance is also partnering with Indian two-wheeler maker Bajaj Auto Ltd to make a low-cost car.
For Mahindra, this is the second occasion when a joint venture for manufacturing cars with a foreign car maker has folded up. Almost a decade ago, the company made an attempt to enter the car market through a 50:50 joint venture with Ford Motor Co. The joint venure sold the FordEscort model. The Indian company first decided to cap its investment before finally exiting the venture.
M&M now hopes to build on the Logan platform by designing more vehicles. “We are in discussion with Renault to see whether we can build another vehicle on the Logan platform,” Goenka said. The new variants developed on the Logan platform will sport the Mahindra badge.
As part of the agreement, while Mahindra will take over the management of the firm, Renault will continue to support M&M and the Logan through a licence agreement and the supply of key components, including engine and transmission. The Renault name and logo will continue to be used on the Logan till the end of this calendar year and the sedan will be sold through the Mahindra dealer network. Over the next 18 months, M&M will rebadge the car to a Mahindra-owned brand name.
Analysts said the deal augurs well for M&M. “It gives the company independence to launch price competitive, contemporary models. As in utility vehicles, they can now succeed in the car market,” said Umesh Karne, an analyst at Bric Securities India Ltd.
The joint venture launched the Logan in 2007, but sales did not meet expectations.
In the 12 months to 31 March, Logan sales more than halved to 5,332 units from 13,423 units in the previous fiscal. Industry observers believe the choice of the Logan for the Indian market was flawed.
Deepesh Rathore, managing director at IHS Global Insight, a market research firm, says while the car might have caught the fancy of European buyers as a low-budget offering costing €6,000 (Rs3.6 trillion), “in India, the customer characteristic changes at that level and she looks for an aspirational product”. The Logan failed on that account, he said.
M&M expects the legal formalities and financial transactions to be concluded in two months. The valuation will be done on the basis of impaired value of the assets, Jejurikar said.
Janaki Krishnan of Reuters contributed to this story.