Leyland-Nissan To Invest $500 M In LCV Business

Two months after signing the heads of agreement to explore a joint production and distribution of light commercial vehicles (LCVs) and engine and engine components with Nissan Motor Co, Ashok Leyland on Monday formalised the deal by entering into a formal agreement with Japan's third- largest auto maker.

This would see the duo collectively invest at least $500 million.

Under the agreements, the two companies would form three joint ventures (JVs) one to manufacture LCVs, another for LCV engines and power train components, and the third for developing LCV products and technology.

Ashok Leyland would hold a 51% stake in the LCV manufacturing JV, which is expected to begin production by 2010.

The initial capacity is pegged at 100,000 units annually and the products would be sold under the Ashok Leyland and Nissan badges in both the domestic and international markets.

Products with a gross vehicle weight (GVW) ranging from 2.5 - 8 tonnes would come under the JV.

In the engine and engine component JV, Nissan will own a 51% stake. The two companies will form an equal joint venture for technology development. Going ahead, there could be a marketing agreement with the two companies.

Carlos Ghosn, president and chief executive, Nissan Motor, said: "We are also studying co-operation at the dealer level as part of our individual sales and distribution networks. This could provide Nissan access to Ashok Leyland's dealers in India and allow Ashok Leyland to access Nissan dealers in specific markets."

Light commercial vehicles have become a focus area for Nissan Motor, which, earlier this year, sold its heavy truck division to Volvo AB.

In Ghosn's own words, the division was a loss-making one that lacked direction and competitive products in the 1990s.

It is expected to sell half a million units this year and has already achieved its 8% operating margin milestone.

For the Rs 7,000-crore Ashok Leyland, which has a stated objective to achieve a Rs 30,000 crore topline from auto and auto-related activities by 2011-12, the LCV segment is crucial.

It is not present in the segment, which grew by a third to almost half a million units last fiscal.

According to R Seshasayee, managing director, Ashok Leyland, "An effective entry into the LCV segment has been on Ashok Leyland's radar for some time now. This partnership with Nissan will allow both companies to develop a range of cost-competitive and customer-oriented LCVs, targeted not only to the Indian market but several select overseas markets."