Mahindra & Mahindra, Skoda-Volkswagen clash over joint venture terms

M&M, with a stronger position in the domestic market, is reluctant to compromise with the two sides facing disagreements over issues related to development costs and sourcing

The negotiations between Mahindra & Mahindra (M&M) and Skoda Auto Volkswagen India for a 50:50 joint venture have stalled. The companies are unable to finalise crucial terms after signing non-binding memorandums of understanding (MoUs) due to disagreements, The Economic Times reported on Tuesday.

 

M&M, with a stronger position in the domestic market, is reluctant to compromise, as the two sides face disagreements over development costs and sourcing. While the deal was expected to be finalised this month, the latest developments have slowed down discussions, the report added.

 

The MoUs have been signed on many aspects of the business, but some crucial terms remain unresolved. The Economic Times cited a source as saying that finalising these terms no longer seems imminent, indicating a slowdown in negotiations.

 

Why is Skoda exploring a deal with M&M?

In August, it was reported that both sides were exploring a joint venture, with the Volkswagen Group looking to offload equity to share costs and risks in the Indian market. The group enjoys relatively less popularity in India compared to its Japanese, South Korean, and domestic rivals.

 

The Indian subsidiary of the Volkswagen Group comprises the Skoda, Volkswagen, Audi, Porsche, and Lamborghini brands. If the joint venture materialises, it will likely focus on the Skoda and Volkswagen brands, allowing the Czech automaker to leverage M&M’s lower development costs and sourcing capabilities.

 

According to the report, the potential joint venture could capture nearly 20 per cent of the domestic passenger vehicle market. However, given its past experience with a joint venture involving Ford Motor, M&M is cautious about the terms.

 

Earlier this month, Skoda Auto CEO Klaus Zellmer expressed optimism about India's potential as the world's third-largest car market. “India, clearly, is our second pillar that we want to build outside Europe," Zellmer said.