Renault may drive out of Chennai project

The Rs 4,500 crore car manufacturing project coming up at Chennai seems truly jinxed.
It was initially set up as a three-way joint venture between Mahindra & Mahindra, Renault SA and Nissan Motor, but M&M pulled out midway owing to multiple partner approach by Nissan. Then came Renault’s admission that it will freeze product plans due to the global slowdown.

Now, Renault said it could consider a complete pullout from Chennai —- if the global situation worsens.

At present, the project is a 50:50 venture between Renault and Nissan.

“Renault may pull out of a joint factory project in Chennai, India, with Japanese affiliate Nissan. It’s possible that we abandon the project completely. It depends on market conditions,” chief financial officer Thierry Moulonguet was quoted as saying by a Bloomberg report.

Renault would recoup half of the €700-million joint investment, leaving Nissan to build a “smaller, cheaper” facility alone, Moulonguet said. The Renault-Nissan alliance will make a decision on the project soon, he added.

Though a Renault India spokesperson denied his company had any plans to pull out of the project - which aims to make and sell four lakh vehicles eventually - he admitted that the initial mid-2010 deadline for product roll out to begin may not be adhered to.

The Chennai facility was meant to build four different car platforms, and multiple variants on each platform, for the sister companies, Renault and Nissan. Till date, Rs 1,000 crore has already been invested by the two partners in plant and machinery.

This dramatic turn of events leaves several questions in its wake: Would Nissan be able and willing to continue with the huge investments needed for Chennai? What would be the fate of the Mahindra-Renault JV which currently only markets the ‘Logan’ sedan? Is the Ultra Low Cost (ULC) car being developed jointly by Nissan and Bajaj Auto also being put on the backburner?

Key people in both Nissan and Renault remained unavailable for comments. A Nissan India spokesperson merely said “we have no comments to make with regard to Renault CFO statement”.

Last month, Nissan had admitted that only one of the two product assembly lines scheduled for Chennai would now go on-stream; it was initially planning to make two sub-compacts at Chennai.

Industry sources pointed out that Renault could reopen negotiations with Mahindra on building the Logan derivatives earlier planned out of Chennai at M&M’s Nashik facility. Another possibility is delaying the ULC project by Nissan, given its precarious financial health at the moment.

The Japanese major has already admitted it is reviewing the multiple JVs signed with Ashok Leyland to jointly enter the light commercial vehicle market.