Ford and Mahindra came together after more than two decades to form a partnership in India. After the fallout of their earlier partnership with each other that lasted a few years in the 90s, Ford and Mahindra shook hands again. However, the deal came to an unexpected end and an official statement on December 31, 2020, confirmed the same. But what really happened between both the brands?
Both the automobile giants have their different views on the fallout. AutoCarPro talked to both the manufacturers to bring out the minute details of the dealbreaker. The official statement from both the manufacturers blamed the fundamental changes in the global economic and business conditions for the fallout. But what happened really?
The blame game
According to the report, a Mahindra insider holds Ford responsible for the fallout. After months of discussions, senior officials of Mahindra found that the deal is not as transparent as they would have liked and they even found a hidden agenda from Ford.
As per the Mahindra source,
“Until April 2020, we hardly had any issues. They were tough negotiators, but that wasn’t a problem. After that, in my view they were following the letter and not the spirit of the agreement,” said a source. Apparently, Ford was being very cagey about Related-Party transactions. “Ford India would import a lot of components from the Ford universe. But they didn’t give us the pricing formula, which we needed to know for us to negotiate. The formula we worked out is that if the JV is doing anything with Ford, then Mahindra will negotiate, and if the JV is dealing with Mahindra, then Ford will negotiate. This way there would be an alignment of interest and not a conflict of interest. But for this to work, we needed to know the transaction prices with the Ford universe,”
Mahindra officials also claim that Ford changed one of the annexures on royalty payments too. The official said that when they were finalising the agreements at 4 AM IST, when Ford put a higher figure on the royalties than they agreed upon.
Ford had an exit strategy in place: Mahindra
Another dealbreaker on the part of Mahindra was the American manufacturer putting a cap on its investments. Mahindra said that Ford put a conditional cap on its investments over a three year period. According to Mahindra officials, Ford did not want to invest beyond Rs 3,000 crore allocated for the joint venture over three years.
The cap on the investment was a red alert for Mahindra as they did not want to put any limits on the investments. That is because if one product fails, it will require a huge amount of money to fix that. Mahindra’s fear that they might become the majority investor in the deal if Ford will back off from pumping more money, if and when needed. Mahindra saw this as an exit strategy by Ford.
Mahindra saw us as a threat: Ford
According to the Ford officials, Mahindra saw the automobile giant as a threat and not a partner. This change happened after Ford showed its C-SUV, which looked much better than the XUV700 according to the Ford official.
Ford also says that Mahindra insisted to make a business case based on the production of just 1,000 C-SUV per annum. This would have increased the price of the vehicle and the difference of price between the XUV700 and Ford’s version could have become very wide.
“It was absurd to think that our C-SUV would sell only 1,000 units a year, even with the Rs 50,000 to Rs 60,000 premium we planned to mark up over the XUV700, our minimum volumes would multi-fold,” said the official
Ford also accuses Mahindra of hastening the situation by making the business case impossibly difficult with unrealistic scenarios. Mahindra projected assumptions based on low volumes and ruined the feasibility of the programmes. Mahindra spoiled the business case for C-SUV and the Aspire EV too. Only BX772 model was not affected as Ford had complete control over it. However, Ford says that out of seven planned products, only BX772 was going through well.
Mahindra claims that Ford made up its mind to exit the joint venture much before, which is why they were making things difficult.