In a classic 4:15pm release on New Year’s eve designed to bury bad news, Ford Motor Company has just announced that it is ending a proposed joint-venture with Mahindra that would have been responsible for expanding the Ford brand in India and exporting Mahindra products to Ford entities globally. Ford would have continued to own the brand (a valuable asset that could be borrowed against as it did during the Great Recession), and its branded vehicles would be distributed through the current Ford India dealer network. Mahindra would have continued to own the Mahindra brand and operate its own independent dealer network in India. (See AutoInformed.com on Ford Restructuring – Mahindra Joint Venture Announced and Mahindra, Ford to Study Links in India, Emerging Markets)
The failure “was driven by fundamental changes in global economic and business conditions – caused, in part, by the global pandemic – over the past 15 months. Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities,” Ford said. Ford in AI’s opinion is on track to lose $400 billion this quarter. Ford and Mahindra announced an alliance in September 2017, and it was expected to be operational by mid-2020. (Things move glacially at Ford see Ford Motor Changes CEO from Jim Hackett to Jim Farley and Weak Ford 2018 Financial Results Prove Need for Shakeup) The joint venture would have been operationally managed by Mahindra, and its governance will be composed of representatives of Mahindra and Ford.
The joint venture was to introduce three new utility vehicles under the Ford brand, beginning with a new mid-size sports utility vehicle that will have a common Mahindra product platform and powertrain. Another area of focus for the joint venture would have been electric vehicles. This appears to be a stunning defeat for Ford since Mahindra owns the SUV segment in India. Mahindra has led the utility vehicles segment for seven decades. Mahindra claims to be the only company with a portfolio of electric vehicles commercially available in India. Expanding its global presence, Mahindra owns a majority stake in Ssangyong Motor Company in Korea. Mahindra also has entered the shared mobility space with investments in ride-sharing platforms in the United States.
Once known for its absence from the Indian market, Korean Kia said in 2017 that it would invest US$1.1 billion in a manufacturing plant in Andhra Pradesh. Ford, of course, sold its stake in Kia decades ago. Kia’s first model, the Seltos SUV, finally made its Indian market debut in August this year. “By offering a vehicle with an impressive list of features, at the very competitive price of US $13,000-22,000, Kia was able to generate offers to the tune of 35,000 at a time when even the highest-selling models have seen sales plunge from a year ago,” said consultancy LMC. “With 18 variants and six powertrain options, Seltos buyers are spoilt for choice. The model also has the distinct advantage of being BS-VI compliant from the outset, while its rivals will have to play catch-up by upgrading their engines to meet the stricter emissions norms before the April 2020 deadline,” said LMC.
Ford also today said its independent operations in India will continue as is. Ford is as usual evaluating its businesses around the world, including in India, making choices and allocating capital in ways that advance Ford’s plan to achieve an elusive if not unattainable +8% company adjusted EBIT margin and generate consistently strong adjusted free cash flow. (See AutoInformed.com on Ford Motor Q1 Prelim Results Hint at COVID-19 Illiquidity, Ford Motor Posts -$2 Billion Q1 Loss, Ford Motor Q2- Sales Drop -53%. Debt Grows $10B and Ford Q3 Net Income at $2.4B Treads Water. Q4 $500M Loss?)
Some Dire Warning Footnotes on Ford Motor
- Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19.
- Ford’s long-term competitiveness depends on the successful execution of global redesign and fitness actions.
- Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs as they have in the past.