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.
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.