Less than a year after signing a joint venture with Germany's Daimler to manufacture commercial vehicles in the country, the Hero group on Wednesday said it was pulling out of this partnership.
"We are disengaging from the joint venture, but the project (to manufacture CVs) will continue to exist and be run by Daimler. The reason for the move is the current economic slowdown and we will not like to commit such big investment in these circumstances," said Sunil Kant Munjal, chairman, Hero Corporate Services.
Daimler had 60 per cent stake in the JV and Hero the rest. The two partners had announced an investment of Rs 4,400 crore (Rs 44 billion). While Daimler had committed to invest Rs 1,368 crore (Rs 13.68 billion), the Hero group was to bring in Rs 900 crore (Rs 9 billion). The JV's manufacturing facility was to be based at Chennai.
Industry executives say apart from adverse market conditions in the commercial vehicle industry, which declined by around 20 per cent in 2008, there could be issues of cultural differences that triggered this separation. "In any JV, there's the issue of give and take, which is essential for a collaboration to survive. There's a possibility this cultural adjustment did not happen," said an executive from a competing company.
Industry executives say the key reason for Daimler to rope in the Munjals, in addition to the investment, was to tap the Hero group's understanding of the local market, especially in vendor and dealership development. "Now, Daimler will find the going difficult on its own," said the industry executive.
Daimler spokesperson Uta Leitner said from Stuttgart: "We will take over the entire 40 per cent stake held by the Hero group for Euro 16 million (Rs 105 crore). There might be some delays." She said Daimler's plans in India were on track and the proposed plant at Chennai would start as scheduled in 2010.