Japanese Automakers Ally with European Automakers to Tap India Market

Sources: India Daily, Wall Street Journal, Financial Express

Japanese motor company Nissan has agreed with Renault SA (France) and Mahindra & Mahindra (India) to jointly construct a new automaking plant in Chennai, a city in southern India. This an agreement between three automaking giants, as Nissan is the world’s third largest automaker, while Mahindra is India’s largest maker of jeeps and tractors. The three companies have agreed that the first vehicles will be produced by 2009. Nissan and Renault (Renault owns 44% of Nissan, as well) will each hold 25% of the project, with Mahindra holding the rest. The investment is likely to be worth at least $908 million over seven years. The factory is to have a capacity of 400,000 units per year. Chennai was likely a desireable location to build the factory because there are already existing factories belonging to Hyundai, Ford, and BMW. This new facility will directly employ 5,000 individuals. The provincial government of Tamil Nadu is now set to provide the land and incentives to ensure the project goes forward.

Nissan will independently market and sell its units, while Renault and Mahindra will jointly sell theirs. At this point, Nissan will focus on compact cars as a pathway to tap the Indian market. Nissan is arriving late to the Indian compact car market, as Suzui currently controls half of the market share. However, Nissan is attempting to tap the rapidly growing auto market in India, as India has a growing middle class and car sales are projected to top two million by 2010. Last year, Nissan only sold 190 unit total in India. On the news of the agreement, Nissan shares closed up 1 percent, Renault 0.4 percent, and Mahindra closed 0.2 percent higher.

Questions

1. What took Nissan, the third largest automaker worldwide, so long to tap into the second most populous nation in the world?
2. How will other automakers, such as GM, Toyota, and Honda (which already are in, or have plans to enter the India market) be affected by the Nissan-Renault-Mahindra alliance?