The broken second Mahindra-Ford JV was the last of 2020 and the first major news of 2021, in the Indian automotive industry. Why they part ways? What’s the impact?
The year 2020 truly rocked the automotive industry. Made a whole lot of headlines, from the plant shutdowns to gradual recovery, from the birth of the world’s biggest automobile brand ‘Stellantis’ to the failure of Mahindra-Ford’s second marriage. Yes, the much-awaited Mahindra-Ford JV has been called off due to the significant changes in the global automotive business environment induced by the Covid-19 pandemic, as claimed by the two automobile giants.
Mahindra & Mahindra and Ford Motor Company – two automobile giants entered into an agreement in October 2019 and the last date of making the deal definitive was 31st December 2020. However, the initial advancement between the two companies, the deal never really materialized.
With several areas of disagreement, relationships between these two auto companies were rocky. M&M was not convinced that the Mahindra-Ford JV would generate returns needed to justify the investment of more than Rs 30 billion. However, despite we witnessed the broken deal between these two auto majors, Mahindra’s investors are happy that the homegrown brand is reducing investments in the competitive passenger vehicle business.
Since India’s nationwide lockdown was eased, the SUVs are witnessing a surge in demand. Also, customers are opting for more technology-laden vehicles. Hyundai and Kia benefitted from this trend and registered 26% and 38% YoY growth in market share during April-November 2020. On the other hand, Mahindra experienced a sharp drop to 16% from 21% during the same period. Ford too slumped to only 4% market share.
M&M has struck over a dozen alliances and majority of them failed to achieve the desired result.
Interestingly, the Mahindra-Ford JV was the second marriage between these two companies that eventually failed after working for two years. Previously, back in 1996-97, the two auto majors joined hands for the first time and introduced the Escort sedan in the Indian market under the joint venture, which failed miserably. That time too, the Mahindra-Ford JV was called off soon after the take-off. Since then, the homegrown automaker has struck more than a dozen alliances and the majority of them failed to achieve the desired result. This certainly pops up a question on Mahindra’s ability to handle partnerships and joint ventures.
What was the Mahindra-Ford JV deal?
Mahindra-Ford JV was in process for more than three years. The two auto companies have previously signed several agreements to explore the opportunities to co-develop an SUV, connected and electric vehicle technologies, sharing engines, etc.
As per the agreements signed by the two auto majors, they were to share BS-VI petrol engines and make a C-segment SUV. Dubbed as project W605, the C-segment SUV was supposed to carry a Ford badge and based on the new Mahindra XUV platform. Apart from that, both the automakers also negotiated the B SUV project, internally known as B772.
Is Mahindra capable of joint ventures?
Merger and acquisitions have been a key element during the Covid-19 pandemic for the global automobile brands to realign their businesses and be future-ready. Not only to streamline their resource utilization, but also to use their synergies to bring new mobility solutions that the future of the sector demands. The Mahindra-Ford JV too was expected to spawn out similar results.
While Ford was expected to use Mahindra’s expertise in the Indian market with SUVs, the homegrown automaker was supposed to use the technology from the American giant. However, Mahindra decided to call it off to avoid too much pressure on scarce resources. Also, M&M claimed that the reason behind this decision was its aim to focus on its core strength of SUVs. However, this could result in a tougher challenge for M&M as Maruti Suzuki is taking an aggressive stance in this segment. Also, Hyundai, Kia, Nissan are gaining more chunks of the SUV market pie with models like Creta, Sonet, Magnite.
Mahindra-Ford JV would have immensely supported the Indian auto industry in the global arena.
While it is to be tested by time whether calling the Mahindra-Ford JV off was the right decision or not, it can be certainly said that the alliance would have immensely supported the Indian auto industry in the global arena. So far, the JV would have been another step for the Indian company towards becoming an even more versatile automotive entity.
The automaker is struggling with its South Korean subsidiary SsangYong. The company is facing bankruptcy and is in discussion with investors to survive. Even SsangYong succeeds to get an investor, M&M will dilute its stake in the Korean auto brand to less than 30% and render controlling stake to the new investor, revealed Pawan Goenka, MD of M&M. Anish Shah, DMD and Group CFO, M&M said that SsangYong carries Rs 980 crore equity liabilities for Mahindra and other inclusive liabilities of Rs 950 crore in debt, including Rs 680 crore outstanding loans.
Previously, Mahindra also inked deals with Renault and introduced the Logan sedan in the domestic market, which is still visible on Indian roads. Apart from that, Mahindra also tied a partnership with Navistar for commercial vehicles, bought Kinetic to step into the two-wheeler segment, bought Classic Legends that retails Jawa motorcycles. Mahindra also introduced its two-wheelers like Mojo, Centuro, and Gusto – all of which bombed in the market. So far, none of these ventures by M&M can be termed successful.
Back in December 2015, Mahindra Group also acquired Pininfarina S.p.A., an iconic Italian car design and coachbuilder firm for an all-cash deal worth around 168 million Euros. Now, Mahindra Group has decided to liquidate Pininfarina Engineering only two years after the establishment of the company. The company has lost business from both of its Hong Kong and Iran centers due to the Covid-19 pandemic and economic slowdown. With this liquidation move, the fate of the 135 employees of the company is now uncertain. Since, Mahindra’s acquisition of Pininfarina, it was expected that the Indian auto brand’s cars will see a drastic design change, but nothing as such happened so far.
In all, all the above instances are enough to raise a question. Despite being an automobile giant, is Mahindra at all capable of carrying a joint venture?
Broken Mahindra-Ford JV: What lies ahead?
With the Mahindra-Ford JV second attempt failed, the major projects under this tie-up would largely remain unused. Both the entities will now move on with their respective own businesses separately. The Mahindra-Ford JV employees will go back to their respective parent companies.
Also, the failure would cast a shadow on the future of Mahindra in the long term, when it comes to the global market. With the history of signing joint venture deals almost every alternative year, but without any significant success, Mahindra’s ability to be an effective partner certainly comes under the scanner.
Ford’s future in the Indian market too doesn’t look too bright with this broken deal. There were already rumors that Ford might exit the domestic market after big brands like Chevrolet, Indian Motorcycle, etc. With the joint venture, there was hope for the brand. But, now, it is to be seen what the American auto major does. The American automaker is now back on the drawing board to figure out if and how it can get the desired profitability from India operations.
For Mahindra, the new Thar has been a successful product so far, with the new design, features, and powertrains. Mahindra has been successful in portraying the new Thar as a lifestyle SUV. The SUV has received more than 50,000 bookings so far.
Inspired by the success of the SUV, we might see Mahindra investing more in bringing in high-quality SUVs in the domestic market. As Pawan Goenka indicated, for the company, it is where to put the money and the key resources. Also, the company is exploring the electric passenger vehicle space, a segment that has less competition and bigger growth potential, if the company can move ahead with the right strategy and focus on its core strength.