Mahindra and Ford break pact giving the reason of Covid 19

What all disruptions has Covid 19 not brought evereywhere? Recently, Mahindra and Mahindra Ltd and Ford Motor Co. had to break their partnership for engine and vehicle development in India. They said that the global disruptions brought about by Covid-19 and the ensuing change in the capital allocation priorities forced them to do so.

The move would prove to be a blow to Mahindra’s plans to get access to manufacturing capacities and new technologies for engines and connected vehicles. At the same time, Ford will have to continue its independent battle to garner a bigger share of India’s market where it has lagged most of its rivals despite a more than two-decade-long presence.

Mahindra, India’s largest sport-utility vehicle maker said that the pressure to conserve cash needed for investments in emerging technologies and intensifying focus on its core automobile business in India have forced them to take this step.

The automaker is aiming at direct cost savings of more thanRs.3,000 crore next fiscal through the separation with Ford and a potential stake sale of its bankrupt Korean unit SsangYong Motor Co.

The decision to part ways “follows the passing of the 31 December ‘longstop’, or expiration, date of a definitive agreement the organisations entered into in October 2019", the companies said in two separate statements.

Pawan Goenka, managing director of Mahindra, said that the joint venture (JV) with Ford was impacted by the global upheaval due to Covid. “In the current scenario, the investments would have been significantly more than what was envisioned. Therefore, it did not make any business sense for either partner," Goenka said.

In October 2019, Mahindra and Ford announced an initial pact for a JV to develop vehicles for emerging markets. Mahindra was to hold the controlling 51 per cent stake and Ford the rest. They planned to share BS VI-compliant engines, besides developing connected vehicle solutions. Ford’s assets in India, including a factory each near Chennai and Sanand, Gujarat were supposed to have been absorbed by the JV and run by Mahindra.

The partnership with Ford and acquisition of SsangYong were meant to enhance Mahindra’s offerings for both domestic and export markets. The decision to pull the plug might negatively affect Mahindra’s product strategy at a time when its SUV market share in India is under severe strain, and competition in electric vehicle space has risen.

Mahindra, which has announced plans to sell its controlling 70% stake in SsangYong, may sign a term sheet with a potential investor, as soon as next week, said Anish Shah, deputy CEO and group CFO, M&M.

“With the kind of change happening in the economic and business scenario, specific to the auto industry, the shift taking place to the kind of vehicles that will be popular in the next 3-5 years, we have to prioritize where to put our money," Goenka said.

To be sure, Mahindra’s new management has been re-evaluating the capital allocation strategy and has decided to exit loss-making businesses across its core and non-core group companies globally.