Setback – Ford Motor and Mahindra End JV Discussions

In a classic 4:15pm release on New Year’s eve designed to bury bad news, Ford Motor Company has just announced that it is ending a proposed joint-venture with Mahindra that would have been responsible for expanding the Ford brand in India and exporting Mahindra products to Ford entities globally. Ford would have continued to own the brand (a valuable asset that could be borrowed against as it did during the Great Recession), and its branded vehicles would be distributed through the current Ford India dealer network. Mahindra would have continued to own the Mahindra brand and operate its own independent dealer network in India. (See on Ford Restructuring – Mahindra Joint Venture Announced and Mahindra, Ford to Study Links in India, Emerging Markets)

The failure “was driven by fundamental changes in global economic and business conditions – caused, in part, by the global pandemic – over the past 15 months.  Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities,” Ford said. Ford in AI’s opinion is on track to lose $400 billion this quarter. Ford and Mahindra announced an alliance in September 2017, and it was expected to be operational by mid-2020. (Things move glacially at Ford see Ford Motor Changes CEO from Jim Hackett to Jim Farley and Weak Ford 2018 Financial Results Prove Need for Shakeup) The joint venture would have been operationally managed by Mahindra, and its governance will be composed of representatives of Mahindra and Ford.

The joint venture was to introduce three new utility vehicles under the Ford brand, beginning with a new mid-size sports utility vehicle that will have a common Mahindra product platform and powertrain. Another area of focus for the joint venture would have been electric vehicles. This appears to be a stunning defeat for Ford since Mahindra owns the SUV segment in India. Mahindra has led the utility vehicles segment for seven decades. Mahindra claims to be the only company with a portfolio of electric vehicles commercially available in India. Expanding its global presence, Mahindra owns a majority stake in Ssangyong Motor Company in Korea. Mahindra also has entered the shared mobility space with investments in ride-sharing platforms in the United States.

Once known for its absence from the Indian market, Korean Kia said in 2017 that it would invest US$1.1 billion in a manufacturing plant in Andhra Pradesh. Ford, of course, sold its stake in Kia decades ago. Kia’s first model, the Seltos SUV, finally made its Indian market debut in August this year. “By offering a vehicle with an impressive list of features, at the very competitive price of US $13,000-22,000, Kia was able to generate offers to the tune of 35,000 at a time when even the highest-selling models have seen sales plunge from a year ago,” said consultancy LMC. “With 18 variants and six powertrain options, Seltos buyers are spoilt for choice. The model also has the distinct advantage of being BS-VI compliant from the outset, while its rivals will have to play catch-up by upgrading their engines to meet the stricter emissions norms before the April 2020 deadline,” said LMC.

Ford also today said its independent operations in India will continue as is. Ford is as usual evaluating its businesses around the world, including in India, making choices and allocating capital in ways that advance Ford’s plan to achieve an elusive if not unattainable +8% company adjusted EBIT margin and generate consistently strong adjusted free cash flow. (See on Ford Motor Q1 Prelim Results Hint at COVID-19 Illiquidity, Ford Motor Posts -$2 Billion Q1 Loss,  Ford Motor Q2- Sales Drop -53%. Debt Grows $10B and Ford Q3 Net Income at $2.4B Treads Water. Q4 $500M Loss?)

Some Dire Warning Footnotes on Ford Motor

  • Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19.
  • Ford’s long-term competitiveness depends on the successful execution of global redesign and fitness actions.
  • Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs as they have in the past.
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1 Response to Setback – Ford Motor and Mahindra End JV Discussions

  1. Clearly, the cancellation of the joint venture was driven by Mahindra’s reluctance to invest new capital to take over Ford’s two manufacturing facilities in India – a move that would have saddled the automaker with excess capacity and additional costs. Mahindra appears to have surmised that it was better served in allocating new capital to its own development of new SUVs, including electrified versions.
    Because Ford is still weighing its options before taking a final decision, we have retained the B-SUV and the C-SUV in our forecast for the time being. But in lieu of cancelling the products, we have lowered their volume projections and now forecast a combined annual volume of around 11-15,000 units, versus our previous projection of 16-22,000 units.

    Aside from these two SUVs, along with next-generation versions of Ford’s existing limited product range, we do not foresee any new model programmes being added to the Indian market. The lack of sufficient product expansion in the country will limit the automaker’s volume and exert additional pressure on its profitability.

    In short, Ford’s future in India looks somewhat precarious. The OEM has failed to make any significant gains in the local market, attaining a market share of just 2-4% in the PV segment over the last decade.

    Its strategy of mostly focusing on one product at a time in India – one-hit wonders, if you will – mirrors the approach of other global automakers who have struggled in one of the world’s most challenging automotive markets.

    Without the influx of a steady stream of new vehicles to enthuse Indian buyers, it is hard to win against the well-entrenched market leader Maruti-Suzuki and its horde of fiercely loyal buyers.

    Not only that but Maruti-Suzuki’s singular focus on India, together with its evolving strategy of moving upmarket to meet the diversifying mobility needs of Indian consumers with continuous product updates and expansions, has made the task of winning market share doubly difficult for global automakers like Ford, for whom India was always lesser priority. In fact, no other automaker in the world’s largest vehicle markets has ever matched Maruti-Suzuki’s stranglehold in India.

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