Wednesday, November 24, 2010

Opinion: The Real Reason for Mahindra’s Failure to Launch

Driven home by the official acquisition of Ssangyong this week, my personal feelings on why Mahindra is jacking around on the whole US launch deal revolves around demand in the Indian domestic market and emerging markets at large. Why? Because that is where the money is.

Emerging Markets
Demand in the Indian market started to steadily increase late in 2009. Manufacturers and suppliers started scrambling to keep up last fall. Demand has continued to rise significantly since.

Chew on this for a moment: Which exploding markets are most of the US, Asian, and European auto manufacturers trying to gain a foothold in? India, China, Eastern Europe, and the former Soviet states. Many of these markets are set to grow massively for the next several decades as their citizenry gravitate towards the middle class. This is where the money is to be made. Mahindra knows this, and they don’t want to lose any business to foreign brands coming into India if they can help it. Conversely, they definitely want to gain ground in these other evolving countries. This is a major reason why Mahindra bought Ssangyong Motor. Ssangyong’s biggest markets are Russia and Europe. Mahindra now has access to a bunch of Ssangyong’s technology, R&D, and manufacturing facilities, but more importantly they bought themselves an established brand that has some 1,300 dealers in 98 countries of these key markets.

Not to take anything away from any of these other countries or Mahindra themselves, but some of them probably have a slightly different expectation of quality, features, appearance, purpose, etc. in a vehicle. Mahindra, and particularly Ssangyong products, will be perceived differently elsewhere than they are by spoiled American car shoppers.

Worth the Effort?
So why bust your balls passing all of our stringent emissions certifications and safety requirements, and then be forced to pay the 25% chicken tax on every vehicle sold, plus a percentage to Global Vehicles USA (GV), only to potentially sell 30,000 vehicles a year in a crowded and competitive market?

I think that 5 or 6 years ago Mahindra saw the US as THE market to be in for two reasons: 1-the status of claiming to be the first Indian-built/Indian brand in the US. 2-their ego and arrogance led them to believe that the US would be a piece of cake to enter.

Once the reality of the global recession kicked in, the world started looking a lot different. Suddenly the US dollar was worth crap, and traditional auto markets (particularly the US) dried up. Emerging markets have started looking pretty good with a low cost of entry and less competition.

The US is just not the same priority for Mahindra that it was a few years ago. They have been slowly going through the motions, but it’s pretty obvious that Mahindra was hoping to either kill GV financially, or otherwise dissolve the contract with minimal financial loss in order to regroup and attack the US market when it makes better sense.

GV has attempted to order trucks several times. Mahindra claimed each time that GV did not have the finances in place to support the order. In my opinion, those truck orders were rejected purely because Mahindra never intended to build US versions at the time. Since they received federal approvals in August of this year, there has been nothing to hold Mahindra back from building trucks for the US market. If Mahindra honestly didn’t think GV had the financials in place to back up the orders they placed, then why the hell wouldn’t they back it themselves just to get the ball rolling? Especially since Mahindra so confident about their success in the US market.

Whether they like it or not, in the US, Mahindra has a legal obligation to satisfy GV and the dealers they represent. The US has many laws in place to protect dealers (GV is also technically a dealer) from unfair practices by manufacturers. Mahindra can fight this and probably buy themselves some time, but the odds are against them (in the US at least). Eventually Mahindra will have to make good with either compensation or product as promised (or re-negotiated).

US Outlook is Still Positive
Mixed in with the headlining news of the Ssangyong acquisition, there is positive speculation that completing this deal will open the door to a revitalized effort to enter the US market.

Mahindra is already making plans to quickly introduce new models as a result of the takeover as early as next year. Mahindra instantly becomes a much larger global player, and has more development and technology resources. Reports are claiming that Mahindra has the cash on hand to complete the Ssangyong deal, and even Ssangyong has been making money this year. It may not be too much to expect that the US target will now loom much larger in Mahindra’s sights. Let’s hope so.


Anonymous said...

If I did not sit in the truck back in March I'd start to belive that it's all a joke and did not exist. The way the truck market is today if the truck was on sale they'd sell out their whole production here in the USA. I think I speak for all of us here that we want a good truck that will not break the bank to run and everything said about the MAHINDRA says that it's the truck. Maybe MAHINDRA feels their product is not good enough?? Who knows but it sure seems that they don't want to deal with USA. I'm about to buy another Dodge and tell MAHINDRA to STUFF IT up their tailpipe!

Anonymous said...

If Mahindra didn't anticipate increased consumer demands in India then it's another example of not doing their homework. With the way Mahindra bungled up the US effort, I wouldn't be suprised if it were all true.

Anonymous said...

well ,the way I see it. They figured they made a mistake with trying to set up with someone other than their own dealers.Now when the smoke clears and only when they can assemble their truck HERE. Then they will only sell when they can reap all that they can and most of all , blow ALL the others out of the market. In other words a for sure number 1 position in the market. when they do it, it will be big!!! we will be in que to buy this truck. Then there will be peace among us. I bought a new toyota because I needed a small truck. when mahindra is ready I will probably be ready to use it as a trade in.

Anonymous said...

3rd Anonymous, congratulations on receiving the Best Fantasy Short award :-)

Ever consider writing for The Onion?

If current Scorpios, TRs, and those spy shots for W201s are a guide to what is to come, expect Yugo 3.0. Mahindra will be run out of town as the Official Joke of the Decade :-) [And that's the best case scenario]

Anonymous said...

wow , i never heard of the onion. This blog is for free speech, i guess that you read the onion and then say i should work for it. what does that say about you? you know about it, and read it . Shame on you. it is people like you that read these blogs, to stick it to someone. i know deep down inside your a big mahindra fan and would fight to be first inline to buy one. I think mahindra knows what it is doing and you just got to have it NOW- RIGHT NOW!! you big mahindra lover. what are your friends going to say when you trade in your jeep? now that all aside. there is some truth to what i am guessing at. they will come when they can laugh all the way to the bank. hell i would buy a china diesel truck if it was available.

Anonymous said...

Makes sense.. MM changed the priority so that their business could be succesful in the long run. Thats what any other company would do to survive.. Some one talking about MM not doing their home work must know many of this country's big name auto makers didn't do their home work right thus needing tax payers bailout..

Anonymous said...

I'm just a normal American, I don't really understand all the hurdles that are in place to come to America to compete with the big 3 automakers and their unions. Sure Mahindra corporate made some mistakes, maybe a language, customs problem. Or maybe it was the fact that they had alot of interested Americans and the big three threw up the gate. All I know is I'll keep driving my Ranger till they get here. Or if push comes to shove, I'll go to Mexico and buy a diesel Ranger.