Mumbai: Hover Automotive India (HAI), Nissan Motor India’s former sales and distribution partner in the country, is winding up its operations, less than two months after the partnership was formally ended.

At one level, Hover’s demise can be seen as the failure of the concept of a master franchisee that did not take off in India. But it is as much a story of the carcass left behind, as another partnership sewed by Carlos Ghosn, Renault-Nissan’s top boss, comes undone.

Hover has communicated to its employees that they will be kept on the rolls for three months only, starting March 2014, albeit without pay. Hover currently employs 180 people. “The business is being wound up," said a senior Hover official who requested not to be quoted as he is not authorized by the company to talk on internal matters. “People have not received their last month’s (March 2014) salary and everybody has been told to look out (for jobs)," he added. A second official from the company confirmed the development.

Six years after they entered into the arrangement, Nissan on 17 February terminated its sales and distribution agreement with Hover. The decision didn’t go down well with Hover, which issued a public notice terming Nissan’s action as “invalid" and “ineffective".

Disputing the termination, Hover said it “has a binding legal distribution agreement with Nissan that establishes the long term distribution rights of Hover in India".

Immediately after, Hover filed for an interim and emergency relief against Nissan Motor Co. Ltd at the Singapore International Arbitration Centre. In the proceedings that followed, Hover lost the arbitration in March.

“Losing this arbitration means the business will not come back to the company. But the case is still on and will take another 2-3 months to end," said the second Hover official mentioned above, who also requested not to be quoted.

In an email response, a Nissan spokesperson said, “Due to the sensitive nature of this matter we have no further comment on Hover Automotive India."

Meanwhile, an HAI spokesperson in an email response said, “The legal proceedings are under way and the matter is subjudice. We are bound by the confidentiality clause and therefore cannot comment at this stage."

Except for Nissan’s alliance with Hover, the concept of a master franchisee has no precedent in India’s auto sector. Every automobile company in the country, from the oldest such as Maruti Suzuki India Ltd, to relatively new entrants such as Volkswagen, have appointed dealers on their own.

Nissan, though, felt that it didn’t understand the Indian market and would need a partner to help it ramp up quickly. That led to the birth of HAI—a partnership between Moez Mangalji, a non-resident Indian based in the US with interests in the hospitality business, and G.M. Singh, a Mumbai-based entrepreneur and former Honda cars dealer.

It helped that Mangalji and Ghosn knew each other and decided to build on their relationship by entering into this alliance.

But the strategy did not play out as planned. Nissan’s ramp-up was slow, its sales were poor and dealer morale was low.

“Unless there are multi brand dealerships, the concept of a master franchisee does not work. Because as a distributor of a single manufacturer, Hover was just adding another layer and eating up margin on the product, which was already low to start with. That did not go down well with dealers who had invested heavily in the business," said Puneet Gupta, associate director at IHS Automotive, an automotive forecasting firm.

In late 2012, the Japanese car maker’s dealers voiced their concerns about dealing with Hover as an intermediary and refused to take deliveries of the Nissan Evalia that was launched in December that year. Negotiations ensued and a settlement was reached. But company insiders were not very confident on how long the relationship would last.

The big blow came in November 2013 with the launch of the Datsun, Nissan’s most ambitious bet in India, when the company announced that it would market and distribute Datsun cars on its own. Three months later, the agreement between Nissan and HAI was finally terminated.

Nissan Motor India’s sales in March grew threefold to 7,019 units, riding on the back of its newly launched entry-level small car Datsun Go.

The company had sold 2,125 units in March last year. In the fiscal year ended 31 March, Nissan’s sales increased to 38,217 units from 36,975 units in the previous year.

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