Keshub Mahindra''s dream comes true: M&M-Renault-Nissan JV

Venkatachari Jagannathan, reports on the details of the unique three-way manufacturing joint venture between M&M, Renault and Nissan

Chennai: Some call the Mahindra-Renault-Nissan manufacturing joint venture as a marriage of convenience. Some call it as culmination of profitable and calculated romance.

Both descriptions of this unique three-way partnership that is expected to roll out 4 lakh vehicles by 2016 are right. What is also true is this joint venture is a new dawn for the automotive industry in India.

But for Mahindra group chairman Keshub Mahindra it is the realisation of long dream.

"Fifty years ago I signed an agreement with Renault to make a small car in India. Its price was Rs7,000," he reminisces.

Perhaps signaling the dawn of a new era of collaborative manufacturing, the 51-page memorandum of understanding (MOU) with the Tamil Nadu government was signed at 6:00 am on 26 February 2007.

The coming together of the three auto companies has several advantages. According to officials, Renault will contribute its expertise in engineering, manufacturing and adaptation to meet customer requirements; Mahindra will contribute its in-dept understanding of the Indian market and supplier base and Nissan brings opportunities for exports.

Further as the combined investment is a huge sum, the parties to the deal were able to wrest some interesting tax incentives from the Tamil Nadu government.

As per the broad announcement the three companies will jointly set up a vehicle manufacturing facility / complex on 925 acre at Oragadum near Chennai. The proposed facility will roll out vehicle models decided by the respective companies (Mahindra & Mahindra, Renault and Nissan) and also make power train for Renault and Nissan. Land acquisition is expected to be over soon the handed over to the company in two months time.

The first car is scheduled to roll out of the factory sometime during the second half of 2009. While the initial capacity and the outlay are under tight wraps, seven years after the initial roll out, the plant is expected to have a total capacity of 4 lakh units. And over the next seven years-by 2012- the investment in the plant is expected to be in the region of Rs4,000 crore.

The Mahindra group will hold 50 per cent in the yet to be named manufacturing company and the balance will be equally shared by Renault and Nissan.

Says Uday Y Phadke, president, finance and legal affairs and member of the Group Management Board, Mahindra & Mahindra, "The equity quantum of the proposed company is not yet finalised though the stake percentage has been frozen. The amount of equity and debt will depend on the production volume of each partner." Adding further he says, "The group''s flagship company Mahindra & Mahindra Limited will be investing in the new venture."

The parties to the deal are unwilling to talk individual production numbers. However according to Mahindra Renault Limited''s website, the 51:49 joint venture to roll out the low-cost sedan Logan (the two will launch more models later) and "a vehicle assembly plant is being setup for the purpose with an initial capacity of 3 lakh cars per year."

According to officials, the companies would first source from the domestic auto component industry and later see the possibility of bringing in their overseas vendors.

Says Tamil Nadu''s industries secretary, Shaktikanta Das, "We have earmarked 400 acres for component vendors to set up base near the new project." While welcoming the project one auto component maker wryly commented, "Indian vehicle manufacturers hike their customer prices quoting increase in input costs. But most of the component suppliers have not had a price increase in the past four years. It is profitable for us to export. And one more company is being added to the list."

Be that as it may, the proposed manufacturing company will have a four-member board of which two will be from the Mahindra group and one each from Renault and Nissan. The chairman and chief financial officer of the proposed company will be from the Indian group while the foreign companies will be in-charge of production and engineering portfolios.

According to Dr Pawan Goenka, the chairman designate of the proposed company and president (automotive) and member of the Mahindra & Mahindra''s group management board, the Oragadum facility will make Renault cars on the Logan platform. Initially the plant will assemble the completely knocked down (CKD) unit imports for the Indian market.

Dr Goenka also said that Mahindra & Mahindra will make only its utility vehicles here and not the new car model that is being developed under the codename Ingeno.

"We will target the ''B'' and ''C'' vehicle segment and also look at export possibilities," says Carlos Tavares, member of the board, executive vice president, Nissan Motor Company Limited.

As to the marketing of the vehicles made at Oragadum, the Mahindra and Renault branded vehicles will be distributed through their exiting dealerships while Nissan will develop its own dealership network.

Are Renault and Nissan using the Indian group''s shoulder to fire at the domestic market? Years ago Ford Motor Company came to India as a joint venture with Mahindra group and subsequently bought out the latter''s stakes.

Answers Mahindra, "Joint ventures are like marriages. Some lasts for ever and some result in a divorce. All the three use each other arms and shoulders to fire."

Expressing his views on the deal an industry official says, "It is an interesting deal. As I see it, Maruti Udyog and Hyundai Motors will be challenged only by Toyota Motors as and when the later starts manufacturing mini car."

So the impact will be largely for Ford India and General Motors. However the later is putting up a small car plant in Maharashtra which would cushion the impact of the new development. According to a car dealer, between Ford India and General Motors, the former is more profitable.

But between European and Japanese cars, Indian car buyers generally prefer the later as they are cost, fuel efficient and of good quality. The market has seen failure of couple of European car models like Fiat, Peugeot and Opel Astra.

"The failure of the three cars has nothing to do with the product," says an industry official.

Similarly Fiat''s Punto if launched next year will find the going difficult. The model was popular four years ago in Europe. "The track record track record has shown that Indian customer is not prepared to buy anything but the latest release in the US, UK and other countries," he adds.