Renault is to sever its formal joint venture ties with Mahindra & Mahindra following a change of tax regime in India.

The deal will see Mahindra buy out Renault's 49% stake although the French manufacturer declines to reveal the exact value apart from pointing to an original agreement that saw both companies announce investment of EUR125m (US$168m) in 2005 to build and sell the Logan model.

The JV was responsible for manufacturing the Logan but Renault will now support M&M through a Licence Agreement to include the supply of key components, such as engines and transmission.

But it is a drastic change in the tax regime that has prompted the radical rethink from Renault, leading it to focus on the existing Indian arrangement with alliance partner Nissan at its Chennai plant.

"Right before Logan was commercialised in India and production was beginning, there was a new tax on vehicles longer than 4m and the Logan was 4.25m, increasing the price by 18%," a Renault spokeswoman told just-auto from Paris.

"There was not time to adapt the vehicle to make it shorter. All of a sudden it did not have the right price position - Logan was number one in its segment but did not have the competitiveness for the Indian market."

The spokeswoman added M&M wants to make "very specific" adaptations to the Indian model that would make the Logan "a whole new car," that would not benefit from economies of scale.

But Renault is at pains to point out its commitment to the Indian market, citing its recent inauguration of a manufacturing facility in Chennai with plans to launch models there from next year.

"The new agreement between Mahindra and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India which will also include engineering changes, in keeping with customer requirements," said Dr. Pawan Goenka, M&M President, Automotive & Farm Equipment Sectors, Pawan Goenka.

The deal will now see M&M undertake Logan management in India, although the Renault name and logo will continue to be used on the car until the end of this calendar year.

Following that, M&M will rename the car to a Mahindra-owned brand name.

"It [JV] was not a negative experience," said the Renault spokeswoman. "The direction Mahindra will take is not the direction Renault wanted

The Logan is manufactured at Mahindra's plant in Nashik and sold through more than 100
Mahindra dealer outlets around the country.

More than 2,600 units have also been exported to South Africa and Nepal.