Mahindra & Mahindra has acquired Navistar’s stakes in the truck and engine ventures at a time when the Indian commercial vehicle market is in the grip of a severe slowdown.
Established players like Tata Motors and Ashok Leyland are monitoring a tight market which has already seen its share of block closures in plants.
The medium and heavy truck segment, in particular, is seeing a sharp fall in sales this fiscal which could worsen. This is a direct fallout of poor demand in key user segments such as coal, mining and construction.
Mahindra Navistar, a recent entrant in the truck space, is still perceived as a marginal player.
Its core business is in M&HCVs which are bearing the brunt of the slowdown. The silver lining in the cloud is that the CV business is cyclical which means the recovery could start happening in a couple of years. This would be the best piece of news to M&M.
Drive-to-Deliver plan
In a joint statement issued here, Navistar said that, as part of its Drive-to-Deliver turnaround plan, it has been reviewing its global businesses and their return on invested capital (ROIC).
Clearly, the India foray has not been yielding the expected results for the American truck maker which has, therefore, opted to exit.
Its CEO, Troy Clarke, admitted as much in the statement.
“Given Navistar’s 2013 priorities, our capital and focus needs to be allocated to other business opportunities in the near term,” he said.The company, which has not been in the best of shape financially, is scheduled to declare its fourth quarter results on Wednesday.
On VW’s radar
Some months ago, speculation was rife that Navistar was on Volkswagen’s radar as a possible takeover target. At that point, this did not seem incredulous given the German automaker’s appetite for acquisitions coupled with the fact that it already had two big truck brands (MAN and Scania) in its portfolio.
As part of its Drive-to-Deliver plan, Navistar will focus on its truck and engines business in North America.
In an investor presentation made in September, it reiterated that change was essential to be ‘faster, more efficient and more focused’.
The levels of functional excellence, Navistar said, needed to be reflected in areas like material procurement, quality/warranty and capacity utilisation.
It was equally critical to evaluate underperforming parts of the business via an ROIC-based strategic analysis to arrive at the right cost structure. It is, perhaps, significant in this context that Navistar will continue to source parts from India.
Other big buyout
From M&M point of view, this is the second big buyout of an ally’s stake since the time it acquired Renault’s equity in the joint venture to manufacture the Logan.
The car has since been rechristened Verito and is doing reasonably well.
M&M also entered the two-wheeler business, through an acquisition, when it stepped in to bail out a beleaguered Kinetic in ’08.