It's a bumpy road ahead for Nissan-Leyland truck venture

The $500-million joint venture between Nissan and Ashok Leyland to manufacture light trucks and engines is facing a massive scale down, adding to
the troubles of Nissan-Renault boss Carlos Ghosn’s jinxed India plans. There will be a substantial reduction to the original plans for investment in the 50:50 joint venture due to the tight financial situation globally, Dheeraj Hinduja, vice-chairman of Ashok Leyland, told ET NOW.

“Originally, the plan was to have a new factory for our JV with Nissan in Tamil Nadu. But following the financial meltdown, we decided to optimise the return on investment and will now use Ashok Leyland facilities as well as the Renault-Nissan plant,” Mr Hinduja said.

The joint venture will use Ashok Leyland’s Hosur facility to make light trucks, said a person familiar with the development. The Hosur facility will start producing 3,000 units in 2010, which will be ramped up to 39,000 units in 2012 and 65,000 units in 2015, he said, requesting anonymity.

This is the third venture of the Japanese-French combine to face problems in India after its partnerships with SUV and tractor maker M&M and two- and three-wheeler maker Bajaj Auto ran into trouble.

While its partnership with M&M is in trouble over the poor performance of the Logan Sedan, the ultra low-cost car venture with Bajaj Auto is facing branding and other issues. Nissan-Renault boss Carlos Ghosn, who recently went on record saying he may end up with only one partnership in India, is scheduled to visit the country next week to meet Bajaj Auto managing director Rajiv Bajaj and top officials of M&M and Ashok Leyland.

Ashok Leyland is currently focusing on two alliances-with John Deere to make construction equipment and with Continental AG to make electronic architecture for buses and trucks. These 50:50 partnerships are crucial diversifications for the company, Mr Hinduja said. Despite the difficulties, the Ashok Leyland-Nissan JV is still on target for an early 2011 commissioning. The product rollout from the John Deere JV is also expected to start in 2011.

Ashok Leyland is also looking at inorganic growth opportunity wherever there’s synergy in terms of technology or geography, Mr Hinduja said. When it was first announced, the Ashok Leyland-Nissan partnership was conceived as three JVs. A vehicle manufacturing company in which Ashok Leyland will hold 51% stake to Nissan’s 49%, a engine and transmission making company in which Nissan will have 51% stake and a technology company in which both will have 50% stake.

In addition, the two partners announced that they were looking to leverage each other’s dealer networks in specific global markets. For example, providing Nissan access to Ashok Leyland’s dealers in India and Ashok Leyland access to Nissan dealer networks in specific export markets.

Ashok Leyland was stung during the economic downturn in the first half of the current fiscal year. Total sales fell 38% to 21,990 units in the April-September period over the corresponding period last year. During the same period, the company’s domestic sales slumped 40% to 19,392 units and exports dropped 21% to 2,598 units. But sales recovered in October with a 66% growth at 4,934 units as against 2,976 units in the same month last year.

RAKESH KUMAR

PGDM IST SEM