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)

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