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Is This Ford's Alternative to Giving Up on India?

By John Rosevear - Sep 26, 2019 at 5:06PM

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Ford may have a surprising plan to save its struggling Indian business.

Is Ford Motor Company ( F -3.67% ) about to throw in the towel in India?

Reuters is reporting that Ford is close to a deal to transfer most of its assets and employees in India into a new joint venture with Indian automaker Mahindra & Mahindra ( MAHMF -4.53% ).

According to the report, Mahindra would have a controlling 51% stake in the new joint venture, with Ford holding the remaining 49%.

Ford hasn't yet confirmed the report, but it did confirm that it's having talks with Mahindra, and didn't deny that a joint venture might be in the works. What's this about?

Ford has been trying for years to build a business that works in India

As longtime Ford investors know, the Blue Oval has been trying for years to build a sustainably profitable business in India, without much success.

Ford first got serious about India in 2011, when then-CEO Alan Mulally saw an opportunity to establish Ford as an early player in an emerging growth market with huge potential. He ordered the construction of new factories in India that could produce up to 440,000 vehicles a year, enough to keep pace with the sales growth that Ford expected at the time.

That plan has been reworked a few times since then:

Now, it appears that Ford has decided to take things a step further, putting most of its India business into a joint venture led by Mahindra.

A blue 2019 Ford EcoSport, a small crossover SUV

Ford's small EcoSport is built in India for export to markets around the world. Image source: Ford Motor Company.

Who is Mahindra & Mahindra?

Mahindra (as it's usually called) is one of India's industrial giants. It's a major builder of trucks, farm equipment, and passenger vehicles, particularly SUVs. The Mahindra Bolero is a simple, sturdy, inexpensive off-road-ready SUV that has been one of India's best-selling vehicles for several years. It's typical Mahindra: not very refined by global standards, but rugged and affordable -- a combination that works well for frugal Indian consumers.

That said, Mahindra wants to be ready to introduce more refined vehicles as the Indian new-vehicle market matures. That was one of its motivations for the deal with Ford in 2017 -- to learn how to take its products up a few notches.

Under the deal that Mahindra and Ford signed in 2018, Ford agreed to work with Mahindra to develop a suite of connected-car solutions suited for the Indian market, and the two agreed to consider joint development of an affordable electric vehicle.

A brown Mahindra Bolero, a large seven-passenger SUV, on a rocky dirt road

Mahindra's Bolero is a big, rugged, and very popular SUV in India. Image source: Mahindra & Mahindra.

It's too early to be sure, but this looks like a good move for Ford

We won't know for sure until we see the details of the deal (if there is one). But for Ford, a deal to turn over most of its business in India to a joint venture led by Mahindra could work out well. That would be a way to step back from the market, biding its time (and mitigating its losses) while keeping the Ford brand in front of Indian consumers until significant demand for higher-priced vehicles starts to materialize.

If the alternative were for Ford to exit India entirely, this would probably be a better long-term solution to a difficult set of challenges. We'll look forward to reviewing the deal if and when it's announced.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$19.14 (-3.67%) $0.73
Mahindra & Mahindra Limited Stock Quote
Mahindra & Mahindra Limited
MAHMF
$11.04 (-4.53%) $0.52

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