By Mike Colias and Patrick Thomas
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 2, 2019).
Ford Motor Co. said it will transfer most of its operations in
India to Mahindra & Mahindra Ltd. as part of a joint venture
with the Indian auto maker, the latest example of auto makers
pooling resources and reducing exposure to challenging markets.
The Dearborn, Mich., car company has struggled to earn money in
India, where its market share remains below 5%, and pricing
pressure on the cars it sells there keeps profit margins slim.
The joint venture will enable Ford, which has been making cars
in India for more than two decades, to remain in a country that has
growth potential without having to shoulder the full cost burden of
developing new models.
Ford said the joint venture will design and build vehicles for
Ford and Mahindra in India and serve as an export hub to North
America, Europe and other regions. The company said the move will
also add scale by gaining access to Mahindra's Indian supply base
and leveraging its expertise in low-cost engineering.
Each auto maker will continue to sell vehicles under their
respective brands in India, where combined they have a 14% market
share, the companies said.
Ford will use Mahindra's lower-cost engineering approach to
develop vehicles for export to emerging markets, including
Southeast Asia and Africa, Jim Farley, Ford's president of new
business, technology and strategy, said in an interview.
The joint-venture structure will reduce Ford's expenses while
increasing scale in India, where the auto maker turned a small
profit last year, Mr. Farley said.
There has been a proliferation of strategic tie-ups among major
car companies in recent years, driven by their pressing need to
invest capital in electric cars, in-vehicle connectivity and other
budding technologies with an uncertain payoff.
The auto industry also faces slowing sales in key markets such
as China, Europe and the U.S. after a long period of growth,
putting pressure on auto executives to find more cost savings.
Under Chief Executive Jim Hackett, Ford has struck many
partnerships with car companies, technology firms and startups to
spread costs and access technology. This year, Ford formed an
alliance with Volkswagen AG to co-develop commercial and electric
vehicles and work together on autonomous cars. Ford also is working
on an electric vehicle with Rivian Automotive, an electric-truck
startup based in the Detroit area.
Mr. Hackett has been overhauling Ford's overseas operations,
under a broader plan to boost overall profitability by steering
investment toward more-profitable parts of the auto maker's
business, such as its North American truck portfolio.
In markets where Ford has struggled to turn a profit or build
sizable market share, it has reduced its presence or exited
entirely. Last spring, Ford ended production and sales in Russia.
The company also is in the midst of selling or closing several
plants in Western Europe, narrowing its focus mostly to larger
vehicles for commercial buyers.
The moves are similar to ones rival General Motors Co. has made
over the past several years under Chief Executive Mary Barra. GM
has left Russia and several Asian markets, and ended sales in
India. It also sold its European business in 2017.
The Detroit car giants and their global rivals spent decades
expanding manufacturing footprints and sales forces across the
globe to build economies of scale in a capital-intensive industry.
But many have scaled back in recent years amid pressures to invest
in future technologies.
Ford said its decision to remain in India through the joint
venture was based on growth expectations for the market and its
strategic importance as an export hub.
"The creation of our joint venture today places India at the
very center of Ford's strategy for international markets," Mr.
Farley said at a news conference Tuesday.
Ford exports its EcoSport small sport-utility vehicle from India
to the U.S. and other developed markets. Mahindra's engineering
expertise in emerging-market vehicles will help Ford develop a line
of low-cost SUVs for export to multiple emerging markets, Mr.
Farley said.
"It's actually building a new capability at Ford, which is
low-cost, highly desirable [SUVs] that we can export all around the
world," he said.
Mahindra, one of India's largest auto makers, will own 51% of
the venture and Ford 49%. The companies value the venture at about
$275 million.
Ford expects to book an $800 million to $900 million noncash
charge related to the establishment of the joint venture in the
third quarter, the company said in a regulatory filing Tuesday.
The U.S. auto maker said it will transfer most of its operations
in India, including its personnel and assembly plants in Chennai
and Sanand. The deal is expected to close by mid-2020, the
companies said.
Ford said it will retain its engine-plant operations in Sanand
as well as the global business-services unit, Ford Credit and Ford
Smart Mobility. It said the joint venture is the next step in its
alliance with Mahindra and said the venture is expected to be
operational by mid-2020.
Mahindra and Ford agreed to a three-year partnership in 2017 to
explore potential areas of collaboration on new technologies and
retail sales.
Write to Mike Colias at Mike.Colias@wsj.com and Patrick Thomas
at Patrick.Thomas@wsj.com
(END) Dow Jones Newswires
October 02, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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