The deal is widely seen as the last attempt by Ford at salvaging its India operations which has been in losses since the year it stepped foot in India in the mid-1990s.
Mahindra and Ford have agreed to form a new joint venture (JV) company that will house almost all of Ford’s India assets having an enterprise value of Rs 1,925 crore.
Mahindra will invest Rs 657 crore to own 51 percent stake in the JV company with Ford holding the rest. This new company will assume ownership of Ford’s India operations including personnel and assembly plants in Chennai and Sanand, Gujarat.
Ford’s engine plant in Sanand, Global Business Services unit, Ford Credit and Ford Smart Mobility will be excluded from the deal.
Ford will also invest 632crore into the JV company. A total of 636 crore debt will be transferred to the JV company.
While Ford did not provide details about its investment in India since its entry but said that it took an impairment hit of $900 million on the deal. Ford India clocked revenues of Rs 26,324 crore in FY19. The deal is widely seen as the last attempt by Ford at salvaging its India operations which has been in losses since the year it first began in the mid-1990s
The JV is the next step in the strategic alliance forged between Ford and Mahindra in September 2017 and is expected to be operational by mid-2020, subject to regulatory approvals. Both M&M and Ford have ruled out any job losses due to the alliance.
Mahindra will be able to produce its own range such as the Scorpio, XUV500 and Bolero from Ford’s plants, but has ruled out producing one product from multiple locations.
The combined production capacity will be 1.2 million units a year of which presently 800,000 is owned by M&M and 400,000 is owned by Ford. As a result of this JV, Mahindra will not be required to invest in setting up new factories for some years.
The JV will be responsible for growing the Ford brand in India and exporting its products to Ford entities globally. The products made by both companies will have 75 percent common parts, will sport independent badges and will be sold through their own independent line of dealerships. Both companies have ruled out the cross retailing of products in their own dealerships.
Both companies are presently working on a mid-size SUV called C-SUV. Discussions are on over working on a smaller vehicle called B-SUV and also a multi-purpose vehicle (MPV).
Talks are also on to fully electrify the Ford Aspire sedan even as M&M is ready to supply the Bharat Stage VI grade engine to the Ford EcoSport. Ford did not give any guidance on its other products such as the Figo and Aspire if they would be upgraded to BS-VI.
More than 20 years ago the two companies joined hands to produce the Ford Escort in India where Mahindra was the manufacturing partner. Mahindra subsequently got out of the venture allowing Ford to develop its own strategy.Anand Mahindra, chairman, M&M said, “Mahindra and Ford coming together is a testament to the long history of cooperation and mutual respect between the two companies. Our combined strengths – Mahindra’s expertise in value-focused engineering and its successful operating model, and Ford’s technical expertise, global reach and access to future technology – are a potent recipe for success.”Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.