Ford will transfer its entire business in India, barring an engine plant in Sanand, Gujarat, and its Chennai-based Global Business Services unit, to a new joint venture company controlled by M&M. The Indian automaker will own 51% in the new entity while the remainder will be held by Ford.
M&M will invest ₹657 crore in the JV, which has a likely equity value of ₹1,289 crore. M&M will induct all of Ford’s India based employees and vehicle plants located in Sanand and Chennai, subject to regulatory approvals.
The transaction is expected to be completed by mid-2020, after which the JV will become operational, according to a joint statement issued by the two companies.
The step highlights Ford’s prolonged battle to effectively compete with new and existing players in India. Despite entering the country more than two decades ago, Ford has struggled to challenge Japanese and South Korean automakers in India. Maruti Suzuki India Ltd and Hyundai Motor India Ltd are the top two carmakers in the country. Ford’s native rival, General Motors, which too entered India about two decades ago, stopped selling vehicles here by 2017-end.
Ford’s move is aligned with its global strategy to mitigate risks by withdrawing from tough markets where it has failed to successfully grow profits over time. In June, Ford said it would restructure its European operations, shutting several production units and laying off about 12,000 people by 2020-end.
“We live in an increasingly complex world. The auto industry is disrupted by several incoming trends, new business models and customer buying patterns are ever changing. I don’t think any one company can address all those areas on its own. We aren’t rushing into partnerships. They have to be the right ones for us," said Bill Ford, executive chairman, Ford through video conferencing from Michigan.
The JV, Ardour Automotive Pvt. Ltd, was incorporated on 26 August as a wholly-owned unit of Ford. Prior to the investment in Ardour, M&M will buy the automotive business of Ford India Pvt. Ltd barring the engine plant in Sanand.
In a joint news conference in Mumbai, Ford and M&M said the JV will be operationally managed by M&M and that the board would comprise an equal number of nominees from both companies. The chairman would, however, be nominated by M&M.
While the JV will produce cars for Ford to be sold in the domestic as well as export markets under the Ford brand, existing dealers of Ford and M&M would continue to operate independently. Ford, however, said it would not look at a large expansion of its dealer network in India in the future.
Pawan Goenka, managing director, M&M said the sales and marketing teams of both the companies will remain independent.
Under the new JV, both companies would jointly work on common product platforms with a focus on utility vehicles (UVs), an area of strength for M&M, as well as cooperate on the development of electric vehicles, an area where Ford has access to advanced technologies. The JV expects to introduce three new UVs under the Ford brand starting with a new mid-sized sport-utility vehicle, which will share the vehicle platform and engine with M&M. Ford meanwhile would look to put a check on its costs by capitalizing on M&M’s wide network of local vendors, product development capabilities and economies of large-scale production.
Meanwhile, M&M said the JV with Ford will give it access to its global distribution network in emerging markets, thereby developing them to boost export business from India. “For M&M, export business accounts for about 7-8%," said Goenka.
“No matter how large a company is, everyone is looking at partnerships in the world for better future," said Anand Mahindra, chairman, Mahindra Group.
Jim Hackett, Ford president and CEO, said India will play a big role in providing computing, software and other key elements involved in technologies such as connectivity and urban mobility to Ford’s global product development.
“While Ford is looking to mitigate risks globally, the joint venture augurs well for M&M as the home-grown company gets access to Ford’s quality and design strengths to make headway into several global markets," said Gaurav Vangaal, country lead, LVP forecasting, IHS Markit. “However, in the future, once the Indian market will become stable on suitable powertrain technologies, we expect US-based carmakers such as GM and Ford will relook at India for growth. Expect this to happen in the long run."