Renault And Mahindra Break Up

Zacks Investment Research
updated | Zacks.com

French carmaker Renault and India’s utility vehicle maker Mahindra & Mahindra have ended their equity joint venture (JV) in the latter’s home country to make sedans for the domestic market. So far, the JV has launched only one vehicle, Logan, a mid-sized sedan.

Logan failed to attract consumers due to its length of fractionally — more than 4 meters — that required a factory gate duty of 22% compared to 10% for the less-than-4 meter cars. The sedan’s sales plummeted to 5,332 units in the last fiscal year ended March 31, 2009. Consequently, the JV lost about INR5 billion ($110 million) during the fiscal year.

The JV, 51% owned by Mahindra & Mahindra and 49% by Renault, had set up a state-of-the-art manufacturing plant in Nashik in Maharashtra, India to roll out their Logan in 2007. The car had 50% indigenous content.

Mahindra has decided to acquire Renault’s stake in the JV and will manufacture the car on its own. However, Renault will continue supporting Mahindra by supplying key components and through a license agreement.

Although Renault has quit the JV, it will continue to focus on the Indian market. Renault intends to build a plant in Chennai to manufacture its Micra model this year and 4 more models by 2012. The automaker plans to export 100,000 vehicles from India by 2013.

Recently, Renault and Germany’s Daimler AG (NYSE:DAI) has exchanged equity stakes of about 3%, adding the latter to the former’s alliance with Japan’s Nissan Motors (NASDAQ:NSANY). Renault-Nissan was formed in 1999, with Renault holding a 44.3% stake in Nissan and Nissan owning a 15% stake (non-voting) in Renault.

Daimler is interested in enhancing the profitability of its Mercedes-Benz A-Class and fuel-efficient smart fortwo micro-cars by sharing the development of vehicles and engines with Renault and, thereby, Nissan.

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