The automotive industry giant teams with Mahindra & Mahindra to strengthen its position in the local market as the latter eyes global expansion.
The bulk of Ford’s Indian operations will move into a joint venture led by Mahindra, which has a long history of business deals with American carmakers. The Indian automotive company will own 51%. For Ford, the goal is to bolster its brand in India and export the cars it makes there. “This joint venture will grow Ford’s presence in India as well as in emerging markets,” Ford Chairman William Clay Ford Jr. explained. “It will also allow the Mahindra brand to expand its global presence.”
The trend of slowing sales in major markets such as China and the U.S., paired with pressure to develop electric and self-driving cars, is compelling many in the global automotive industry to form partnerships in order to share costs and risks. “I don’t believe any one company can do this alone,” Ford said, adding that partnerships will become the norm. Ford is also working with Volkswagen on self-driving cars as well as commercial vehicles in Europe and pickup trucks for foreign markets.
Ford hired Chief Executive Jim Hackett in 2017 to reinvigorate the company, which has thus far been an uphill battle: In the second quarter, Ford reported net income of $148 million, down from $1 billion a year ago. Hackett’s strategy has been to cut losses and streamline operations. This includes the planned closure of five plants in Europe and cutting about 10% of its global workforce.
The Mahindra venture is Ford’s latest cost-cutting effort. It also represents a major pivot in the automotive industry icon’s strategy in the Indian market. Over the past 25 years, Ford has invested about $2 billion in India, expanding a plant near Chennai and adding a second one in Sanand, with the expectation of rapid growth. But the Indian automotive market has not grown as many experts anticipated.
Ford’s Indian business was profitable in 2018, but the value of its assets in the Indian market has since declined. The company expects to book a charge of $800 million to $900 million in the third quarter, the New York Times reports. “This isn’t an easy market to operate in, and now they are shouldering some of the burden with Mahindra,” said Morningstar analyst David Whiston. “This protects their risk on the downside.”
The deal will transfer control of Ford’s Chennai and Sanand plants to Mahindra. Ford will retain an engine plant in Sanand. Both companies will maintain branded distribution networks in India, though Mahindra will use Ford dealers to expand in emerging markets. They expect the joint venture to introduce three utility vehicles under the Ford brand, including a midsize S.U.V. for emerging markets. Ford and Mahindra will also collaborate on electric vehicles. Subject to regulatory approval, the venture could be in operation by mid-2020.