India’s utility and passenger vehicle manufacturer Mahindra & Mahindra wants Korean auto-maker SsangYong Motor, in which it has a major stake, to join a three-way alliance with Ford Motor Company, to develop products ― including electric vehicles ― plus platform sharing and global marketing.
Mahindra formed a joint venture with Ford this month after buying a 51% stake in the Indian unit of the US auto major. This venture will manage Ford’s Indian operations.
Mahindra’s managing director and chairman of the SsangYong board Pawan Goenka revealed these moves to The Korea Times daily. He felt that SsangYong cars are similar to products Mahindra and Ford are developing. “SsangYong can also participate in product development, which will help reduce costs substantially – cost-sharing among three parties rather than two.”
“Ford is very well aware of our SsangYong ownership and the SsangYong management is keen to join it. Mahindra and Ford are discussing Mahindra converting Ford vehicles into electric vehicles, which will be made jointly by Mahindra and Ford, potentially used by SsangYong, although nothing has been decided yet,” he told the Korean daily.
SsangYong has been plagued with lackluster sales and widening losses. Goenka revealed that as part of its turnaround plan, the company plans to increase sales outside Korea and launch new products at a faster pace and at a lower cost. “The joint venture we have with Ford can potentially become very helpful for SsangYong when we look at joint product development and reducing costs and increasing our network access outside Korea,” he said.
Goenka allayed fears of investment being a constraint for product development at SsangYong, saying that Mahindra would always support SsangYong when needed. But he said it wasn’t clear whether any additional investment was needed. “We will determine what is required or whether the additional investment will come from the major shareholder or borrowing from outside,” he said.
Economies of scale
In regard to Mahindra’s recent joint venture with Ford, the transaction is expected to be completed by mid-2020. The likely equity value for Mahindra’s 51% stake will be 6.57 billion rupees (US$92.7 million) and Ford will transfer its Indian operations to the joint venture, including its personnel and assembly plants in Chennai and Sanand.
Mahindra plans to utilize Ford’s expertise in product development and global sourcing to lower vehicle development costs by 30-35%. The company will explore synergies in manufacturing by combining capacity at both company’s facilities, leading to an annual production capacity of 1.2 million vehicles and also boosting distribution channels.
It also plans to achieve economies of scale in electric vehicle production by utilizing Ford’s Aspire platform. Mahindra can also tap into Ford’s development of a global electric-vehicle system for the supply of critical parts.
Mahindra was one of the first movers in the electric vehicle sector in India and pumped in millions of rupees, but sales of its electric passenger cars have been poor. It had to discontinue making the e2o model plus electric cars because of meager sales and passenger vehicle safety norms.
For Ford, leaving the Indian market was understandable. The Detroit-based giant was finding it difficult to scale up its business in a price-sensitive market despite investment of $2 billion over two decades. With this deal, it can reduce operational costs of a weak market outside America.
Two years ago, Ford’s US rival General Motors also left the Indian auto market and its plant at Talegaon in Maharashtra state now caters only for exports.