A cost-cutting deal called “pivotal” by Ford in 2019 has gone kaput, the automaker announced just after the stock market closed on New Year’s Eve.
It was a quiet but dramatic turn of events for Ford that potentially carries financial consequences in 2021 and throws into question Ford operations in India. Ford loses money in all markets in the world except North America.
The Dearborn automaker and powerhouse vehicle maker Mahindra & Mahindra have “mutually and amicably determined they will not complete a previously announced automotive joint venture between their respective companies.”
The Dec. 31 announcement marked an end to a deal initially touted in October 2019 as key to the $11 billion restructuring plan put forth by then-CEO Jim Hackett.
Ford said at the time that it had inked a deal with Mahindra that would shift Ford’s long-struggling India operation to a new joint venture valued at $275 million and “develop, market and distribute Ford brand vehicles in India and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world.”
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The $275 million represents the value of the assets that would have been part of the joint venture; Ford will retain those assets, company spokesman Ian Thibodeau told the Free Press on Monday.
Ford announced at the time that Mahindra, which has offices in Auburn Hills, would own a 51% controlling stake in the deal: “Ford will transfer its India operations to the joint venture, including its personnel and assembly plants in Chennai and Sanand. Ford will retain the Ford engine plant operations in Sanand as well as the Global Business Services unit, Ford Credit and Ford Smart Mobility.”
Ford’s Jim Farley, then-president of new businesses, technology and strategy and now CEO, flew to India for the announcement and called the development “a pivotal moment in our company’s history.”
Farley praised Mahindra for its cost efficiency and said in 2019, “Together, we feel we can create a strong and competitive powerhouse. Our new joint venture will allow Ford not just to sustain our business in India” but to profitably grow it there.
Ford said in 2019 that “the joint venture expects to introduce three new utility vehicles under the Ford brand, beginning with a new midsize sports utility vehicle that will have a common Mahindra product platform and powertrain.”
It also said Ford and Mahindra would collaborate to develop electric vehicles “to support the growth of sustainable mobility across emerging markets.”
When asked Monday about how dissolution of the deal impacts product development, Thibodeau said Ford has no additional information to provide.
Mahindra executives cited “friendship and synergy” with Ford in 2019 as well as “frugal engineering” and the ability to reach scale that produces more products for less money.
Ford has been manufacturing in India for the past 25 years, after taking a decades-long break in the densely populated country with low labor costs. The company has two assembly plants in Sanand and Chennai, which exports the EcoSport to the U.S., another engine plant in Sanand, and offices in Delhi and Coimbatore, Ford confirmed Monday. It employs about 14,000 people in India.
Never mind
But last week, Ford disclosed in its news release that “fundamental changes in global economic and business conditions — caused, in part, by the global COVID-19 pandemic — over the past 15 months” had changed the landscape. “Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities.”
The timing of the decision, Ford said, simply dovetailed with the expiration date of the agreement the two companies entered into in October 2019.
Ford’s independent operations in India “will continue as is” while the company “actively” evaluates its business worldwide, including India.
In announcing the fizzled joint venture plan, Ford said it plans to:
- “Turn around its automotive business — competing like a challenger while simplifying and modernizing all aspects of the company.”
- “Grow by capitalizing on existing strengths, disrupting the conventional automotive business, and partnering with others to gain expertise and efficiency.”
This shift with Mahindra seems to fly in the face of actions that earned praise from analysts in 2019, who noted Ford had sunk $2 billion into India with little return — a tiny market share hovering around 3%.
“Ford had a smooth way to ease their way out of India,” market economist Jon Gabrielsen said Monday. “But now their only way would be a hard exit with a lot of costly financial implications.”
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Dan Levy, an analyst at Credit-Suisse, told investors Sunday of the change in Ford’s plan and noted the deal would have helped Ford reach the ambitious financial goals sought by Farley.
Factors unrelated to Ford could end up hurting Ford, one analyst said.
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions based in Chester Springs, Pennsylvania, said Monday the coronavirus has “put a lot of companies in trouble — not necessarily at risk, but less stable than they were. Mahindra is one of those.”
Ford may be paying the price for problems Mahindra is having with a South Korea-based vehicle maker it bought in 2019.
“They’re having trouble with its SsangYong division,” Fiorani said. “They’re desperately trying to sell at the moment. SsangYong has run out of money. So Mahindra has other things to focus on. This is one thing that could be influencing the (Ford) situation.”
While India is a big growth market with potential, outside companies have trouble penetrating, it’s a “tough nut to crack,” and now may be time for Ford to pull out of India to shore up resources, Fiorani said.
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John McElroy, veteran industry observer and “Autoline After Hours” host, signaled the need for big decisions at Ford.
“I think we’re seeing more financial discipline under new CEO Jim Farley and CFO John Lawler,” he said. “They must recognize that Ford is behind GM in developing a new line of electric vehicles and wanted to prioritize capital spending toward EVs, instead of low-margin vehicles in India.”
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Contact Phoebe Wall Howard: 313-222-6512 orphoward@freepress.com.Follow her on Twitter@phoebesaid. Read more on Ford and sign up for our autos newsletter.