Ford could be revisiting all its plans on the joint venture with Mahindra, for developing vehicles for India and emerging markets. The company could review ones it plans to keep from a profit standpoint, as per information from people in the know of the company.
As readers are aware, Ford and Mahindra had proposed a joint venture to develop sport-utility vehicles (SUVs): initially 3, for India and the emerging markets.
The joint venture arrangement included sharing suppliers and investing in powertrains and technology. The $275 million deal was called off on Dec.31. This effectively could end most of Ford Indias’ independent operations.
The other options being considered could include working out a new relationship with Mahindra or even ending the relationship and related vehicles completely. It is also gathered that Ford Chief Executive Jim Farley wants to look at a path to greater profitability in India. A decision on this could be impending in about a month or two. Already, since Farley became a CEO in October’2020, the company has been pushing to position itself globally, as a part of its $11 billion restructurings. It is focussing on using its financial resources judiciously. It has ended manufacturing in Brazil and is speeding up its rollout of electric vehicles With all these priorities, India may be now lower on priority.
Then again, the tie-up with Mahindra could have given Ford a better chance against rivals, as it could have launched new vehicles faster, with lower costs and investment, company officials and analysts previously opined. For Mahindra too, it would have been an opportunity to enter new global markets, but the concerns on the low return on investment on the tie-up exist. However, as per Ford India, its independent Indian operations will continue. "We are reviewing our businesses strategy, making choices and allocating capital consistent with the plan to achieve an 8% company adjusted EBIT margin and generate consistently strong cash flow," spokesman Kapil Sharma said."We will have more details to share at a later date." And as per Mahindra sources, a timeline till the end of March 2021 has been defined to explore ways in which the two majors could collaborate. STRATEGIC RETHINK Ford is weighing all programs in its joint venture with Mahindra; and will review each one from a profit standpoint, the second source said. The most crucial to the joint venture was a mid-sized SUV, to be built by Mahindra on its vehicle platform; and using its powertrain. Ford had planned to launch this in 2022.
The target was to sell around 50,000 units annually in India, two sources said. Now, Mahindra, too, has asked suppliers to freeze work on this, it is gathered. Ford is also negotiating new terms, including costs, for an engine that Mahindra was to supply, for its EcoSport SUV later this year, one of the people said. Ford was building for launch two other SUVs, with Mahindra Engines, in 2023 and 2024. Now if Ford decides to move away from the joint collaboration, the company would need to find another supplier or have to invest in upgrading its own engines, two sources said. It could all come down to a cost versus profit analysis and that would be hinging on discussions with Mahindra," one of the sources said. Also, at a program earlier this, Dianne Craig, president of international operations, said Ford was exploring all options, when asked about the company's plans, following the end of the Mahindra relationship. Ford's average sales in India have been languishing around 90,000 units a year prior to the economic slowdown in 2019 and the pandemic in 2020. However, exports are almost double what they sell in the domestic market; and that helps the company make money. Another major concern for Ford India is its low plant utilization of around 53%, over a five-year average. And as Ford thinks about bringing global products to India, its Territory SUV in China could be an option. An option, Ford could need to look at several factors including competition, new fuel-efficiency rules, and its ability to be both successful and make money in a price-sensitive market. India's competitiveness as an export base for affordable cars could also play a role the two sources said. "If Ford decides to invest more in India, it would need to know by when it can recover that investment," one source said.
Article Source: ET