Ford Motor Co is nearing a deal with Mahindra & Mahindra to form a new joint-venture company in India, a move that will likely see the U.S. automaker cease independent operations in the country.
According to Reuters, the deal would make Ford the latest automaker to pare back its interests in India. At the end of 2017, General Motors Co downsized its Indian operations and stopped selling cars locally, dealing a blow to Prime Minister Narendra Modi’s strategy to encourage domestic manufacturing.
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Over two decades, Dearborn, Michigan-based Ford invested more than $2 billion in India but has consistently struggled – it currently has a market share of just 3 percent in India, one of the world’s fastest-growing car markets.
Under the terms of the deal being negotiated, Ford will form a new unit in India in which it will hold a 49 percent stake, while Mahindra will own 51 percent, the two sources said.
The U.S. carmaker’s Indian unit will transfer most of its current automotive business to the new entity, including its assets and employees, according to one of the sources.
“It’s like a partial exit (for Ford from India),” the source said.
The deal is expected to close within 90 days, the sources said, adding the value of the transaction was not yet clear.
They spoke on condition of anonymity because of the sensitivity of the matter.
Ford said it does not comment on speculation, but added both companies continue to work together “to develop avenues of strategic cooperation that help us achieve commercial, manufacturing and business efficiencies”.
Mahindra too said it does not comment on speculation. It said in a statement it was “working together in identified areas” with Ford after a 2017 partnership arrangement, and “will announce further definitive agreements as we progress on some of the other areas.”
Currently, Ford manufactures and sells its cars in India through its wholly-owned subsidiary. In 2017, it formed a strategic alliance with Mahindra under which, among other things, they will build new cars together, including sport-utility vehicles and electric variants.
Ford has been globally restructuring its businesses with an aim to save $11 billion over the next few years. Last month, its Russian joint venture said it would close two assembly plants and an engine factory in Russia, exiting the country’s passenger vehicle market.
India has been a major growth area for global car manufacturers but growth has slowed of late – car sales grew by 3 percent to just over 3.3 million units in the last fiscal year to March 31, compared with 8 percent the previous year.
Even so, India is set to become the world’s third-largest car market by 2023 with sales of over 5 million cars annually, according to forecasting firm IHS Markit.
Ford’s decision is a stark reminder of how most foreign automakers have struggled to make major inroads in India, a market dominated by players such as Maruti Suzuki and Hyundai Motor Co.
Ford sold close to 93,000 vehicles in India last fiscal year, a far cry from market leader Maruti Suzuki which commands a 51 percent market share and sold more than 1.7 million cars.
Automakers such as Maruti benefit in India from their vast dealership network and an autonomous local team that can quickly react to market changes.
One of the sources said the Ford-Mahindra deal would lead to more affordable Ford cars in the country, as the company would not need to pay any royalty to its global parent, as the Indian unit has to now.
FILE PHOTO: The logo of Mahindra and Mahindra is seen at a showroom in Mumbai, India, August 30, 2016. REUTERS/Danish Siddiqui/File Photo
The funds that accrue to Ford’s India unit because of the deal will also be used to clear some of its accumulated losses, the two sources said.
Puneet Gupta, associate director at IHS Markit, said the deal would help Ford and Mahindra launch new models at a faster pace and lower development cost, which is critical to success in a price sensitive market like India.
Ford launches layoff program for Brazil’s Camaçari plant
In the meantime, the Brazilian unit of Ford Motor Company has said that it was initiating a voluntary layoff program for its plant in Camaçari, in the northeast state of Bahia, with the objective to cut workforce it said was in excess of current needs.
The company in its statement did not say how many people it expected to lay off.
Ford previously said the plant was operating with about 700 excess workers. The plant employs 7,400 people in Camaçari, where it produces the compact Ka and mid-sized EcoSport SUV.
The U.S. automaker said two months ago it would close its oldest plant in Brazil, in São Bernardo do Campo, which could cost more than 2,700 jobs as part of a restructuring meant to end losses around the world.
Referring to the Bahia plant, Ford said: “The measure has the objective to align the plant’s workforce with current market demand.”
Ford sold 24,000 Ka vehicles in Brazil in the first quarter, about the same level as in the previous year. It sold 7,600 EcoSports, more than the 7,000 reported in the first quarter of 2018.
Oyedeyi Samson with Agency Reports
