MUMBAI - France's Renault is bailing out of a loss-making joint venture with India's Mahindra & Mahindra after disappointing Logan sales, and is expected to focus on other projects in the potentially high-growth market.
European carmakers are increasingly looking to the fast-growing BRIC markets -- Brazil, Russia, India and China -- as they emerge from a deep crisis and as scrapping incentive schemes in mature markets that boosted car demand wane.
Mahindra & Mahindra will buy out its partner Renault's 49 percent stake in the joint venture that makes and sells the no-frills Logan sedan in India, the companies said on Friday.
Renault will continue to support Mahindra and the Logan car through a five-year license agreement and the supply of key components, including the engine and transmission. Under the agreement Mahindra has complete ownership of the Logan, but limited re-engineering rights to refresh the product.
Mahindra will use Renault's name and logo till the end of 2010, the companies said in a joint statement.
Pawan Goenka, Mahindra's automotive sector president said the two partners had invested 7.5 billion rupees ($169 million) in the joint venture.
A Renault spokeswoman declined to comment on the financial details of the buy-out.
We are looking forward to turning this product around, Goenka told reporters.
We mutually agreed that the Logan will be more successful if it was completely under Mahindra & Mahindra.
Our becoming a solo player in the passenger car segment does not change our basic strategy of being a core player in SUV, Goenka said.
Jatin Chawla, analyst at brokerage India Infoline said: I don't think this is going to be too much of a positive for Mahindra.
For Renault it's obvious ... They were going nowhere with the venture and they have other car ventures in India, said Chawla, who sees the joint venture as very small with annual revenue potential of between 5 billion rupees and 6 billion ($113 million to $135 million).
UBS analyst Philippe Houchois said: It's time wasted and opportunity wasted more than anything else but it's good that (Renault is) moving on.
I'm not sure how strong Nissan really is in the region but it's better than having a local partner you're not really able to work with, he added.
Societe Generale analyst Philippe Barrier agreed: It's bad news that the Logan is not doing well in India, but fundamentally, (Renault has) other solutions, other ambitions.
The buy-out is rather good news, as the joint venture was not working, he added.
The joint venture was set up in 2005 with Mahindra, India's largest utility vehicles and tractor maker, holding 51 percent.
The no-frills Logan, which met with an enthusiastic response when it was launched in 2007, has suffered dwindling sales as it attracted a factory gate duty of 22 percent due to its 4 metres-plus length, making it expensive for its target customer segment.
The agreement signed on Friday allows Mahindra to shorten the car to below 4 metres.
In 2009/10, it sold only 5,332 units, less than half of the 13,423 units it sold in 2008/09 and about a fifth of 25,891 units sold in 2007/08. The venture made a loss of nearly 5 billion rupees in 2008/09, which was written off by Mahindra.
Renault is simultaneously pursuing other ventures in India.
Renault and its Japanese alliance partner Nissan Motor Co, in which it has a 44 percent stake, are investing 45 billion rupees over seven years in a manufacturing unit in Chennai, while Nissan will roll out its Micra hatchbacks from the plant in July.
The Renault-Nissan alliance is also partnering with Indian two-wheeler maker Bajaj Auto to make a low-cost car.
By 1249 GMT Renault shares were up 0.36 percent at 35.29 euros while before the announcement Mahindra shares closed 1.51 percent lower.
Mahindra is currently preparing for the launch of a pick-up truck in the United States, built on the Scorpio platform.
Last month the Indian firm inaugurated a brand new 300,000 unit-a-year facility in Chakan, near the western Indian city of Pune, in which it is investing 50 billion rupees. (Reporting by Janaki Krishnan; Additional Reporting by Helen Massy-Beresford; Additional Writing by Devidutta Tripathy; Editing by David Holmes and Jon Loades-Carter) ($1=44.3 rupees)