InvestorQ : Why has Mahindra & Mahindra called off its latest joint venture with Ford Motor of the US?
Archita Jajjoo made post

Why has Mahindra & Mahindra called off its latest joint venture with Ford Motor of the US?

Answer
image
Niti Shenoi answered.
1 month ago
Follow

You may perhaps recollect that Mahindra and Ford had a joint venture tie-up almost 30 years back but that really did not work out and eventually fizzled out. Now, even the second attempt by Mahindra and Mahindra and Ford Motor to come together in a joint venture plan has been shelved considering the present market conditions.

Both M&M and Ford have jointly decided to call off the proposed equity collaboration as a part of which Ford Motors India would have ceded effective control of its Indian subsidiary to Mahindra. Ford has been struggled to survive in the Indian markets against the onslaught of competition from the likes of Maruti Suzuki, Hyundai, Toyota and Honda.

However, investors are quite happy about the deal being called off. It may be recollected that M&M had also recently decided to exit its Ssangyong business with the Korean giant. Analysts feel that the decision to stay away from both the outfits would fit in perfectly with the efficient capital allocation plans of M&M, which is urgent in post-COVID scenario.

It was a mutual decision because M&M and Ford were quite clear that terminating the deal was prudent decision in the current situation when sales traction was still a big question mark. Pawan Goenka of M&M also hinted that MYM will not build any international presence in the short to medium term and focus on conserving capital for future growth.

M&M also clarified that the JV did not add value to the group as the actual investment was turning to be higher than anticipated. They felt that the proposed investment of Rs.1400 crores would be hard to justify if the current sales numbers were taken as a benchmark. Now Ford may look to continue its local operations, which it was originally planning to ease as part of the JV agreement.

Under the new terms and conditions agreed upon, Ford will continue its standalone business in the country. Both the parties will also review their collaboration plans including supply of engines to Ford by Mahindra and co-development of certain models. Apparently, the success of the new Thar has given M&M the confidence that it can go on SUV alone.

1 Views