Expanding their alliance inked two years ago, India's largest utility vehicle maker Mahindra & Mahindra and US car giant Ford on Tuesday signed definitive agreements to create a joint venture to develop, market and distribute Ford brand vehicles in India and Ford and Mahindra brand vehicles in emerging markets.
Mahindra will hold 51 per cent stake in the new joint venture (JV) company and Ford 49 per cent. Ford will transfer its India operations, including its assembly plants in Chennai and Sanand and employees, to the new JV company.
However, Ford will continue to own the Ford engine plant operations in Sanand, Gujarat, as well as its Global Business Services unit, Ford Credit and Ford Smart Mobility.
"There are complimentary strengths that both parties bring to the table. Ford obviously has advanced technology capability, matured product development, global sourcing and global market reach and know-how, where Ford has a wide presence in many emerging markets," said Pawan Goenka, managing director of M&M.
"Mahindra knows the emerging market business model reasonably well and has done well in terms of financial performance, integrated product development infrastructure in India through Mahindra Research Valley and other network, strong India sourcing and we know India market quite well and have a wide network here," Goenka added.
Though the two companies are forging a joint venture, Mahindra and Ford's sales and marketing teams will remain separate and will operate individual, independent front-end network of dealerships.
The JV company, which is expected to be operational by mid-2020, will be operationally managed by Mahindra with equal representatives of the two companies.
The enterprise value of the deal is Rs 1,925 crore, which will include a debt transfer of Rs 636 crore from Ford India Private Ltd to the new company. Of the remaining equity value of Rs 1,289 crore, Mahindra will contribute Rs 657 crore (51 per cent) and Ford will put in Rs 632 crore (49 per cent).
The two companies together will have a production capacity of 1.2 million units per year, including Mahindra's as well as Ford's manufacturing plants in India.
"This JV will grow Ford's presence in India as well as in emerging markets. It will also enable the Mahindra brand to expand its global presence, making this alliance a perfect win-win," said Bill Ford, executive chairman of Ford Motor Co.
Ford will continue building vehicles in India for the local as well as global market, he added.
With the joint venture, the scale of the combined sourcing in India will be 1.3 times the current scale for M&M and three times the current scale for Ford, said Anand Mahindra, chairman of Mahindra Group. "We are going to be looking at common platforms across Mahindra, Ford and Ssangyong and this could be a potential game changer," said Mahindra.
Currently the two companies are working on a C-Segment sports utility vehicle, which will be manufactured in Mahindra's plant and supplied by M&M for both the companies, according to Goenka.
That will be followed by two yet to be approved products, which will be based on Ford's B-Segment platform and will be made in Ford's plant in Chennai or Sanand, for Ford and Mahindra.
There are also plans to develop a new electric vehicle on Ford's Aspire platform. This vehicle will be based on Ford's Aspire sedan, but will be powered by Mahindra's electric powertrain.
While the products developed for both the companies will share same platforms, the companies will ensure that the end product will be different to each other from the customer view point.
The combined market share of M&M and Ford will touch 14 per cent and the JV is expected to be EBITDA (earnings before interest, taxes, depreciation and amortization) positive from the first year.
This is the second time Ford and Mahindra are joining hands. In the 1990s, the two companies had joined hands to make the Ford Escort sedan. Both later parted ways, with M&M going on the develop it's hugely successful Scorpio SUV and Ford concentrating on cars through the Icon sedan.
However, Ford has struggled to gain traction in a market dominated by Maruti Suzuki and Hyundai.
