Inside The Collapse Of Mahindra's US Market Plans

inside the collapse of mahindras us market plans

I believe that, legally, I’m still their U.S. distributor. And I want trucks delivered to our dealersImporting niche vehicles from an unknown foreign automaker has long been a fraught process for US-based entrepreneurs, and John Perez’s attempt to bring diesel-powered Mahindra pickups to the US has been no exception. For four years, Perez’s Global Vehicles distribution network waited while Mahindra sought EPA certification for its diesel pickup engine, and then six days after approval arrived, the Indian firm dumped Perez with little ceremony. Now Mahindra says it will consider giving franchisees to the dealers who paid Perez up to $200k for the right to sell Mahindras, but that it is not obliged to do so. Perez is suing Mahindra for failing to fill an order for pickups, while dealers are considering suing Perez and Mahindra is seeking to end its agreement with Perez so it can distribute pickups through independent dealers. Mahindra’s Roma Balwani tells Automotive News [sub]The current dealers’ contract is with GV [Perez’s distribution channel, Global Vehicles] and hence they do not automatically become Mahindra dealers. However, we would be considering these dealers for our network if they are interested. We will need a new distribution network and soon we will start a dialogue with potential dealers, including the ones who are signed up with GV, if they are interested in signing up with Mahindra.A lawyer representing several of the dealers who signed on with GV explains that several states have laws preventing a manufacturer from dissolving distribution deals that are already in place. Precedent has been set ins tates like Florida and Georgia by what are known as “Jim Moran law,” after the owner of Southeast Toyota Distributors, who successfully held off attempts to strip him of his distributorship. But, notes the lawyer for GV’s dealersI don’t know that any of this has ever been tested in court. When you come down to it, there really aren’t too many vehicle distributors in the United States. And what few there are, I can’t say if any of them has ever been challenged by a manufacturer.Meanwhile, the Mahindra deal is especially complicated because a number of GV’s dealers signed on for the Mahindra deal for no money down, after a previous GV attempt to import Romanian ARO SUVs fell through. Of the dealers that did spend up to $200k for the right to sell Mahindras (over 50 percent of GV’s 347 dealers fall into this category), most recognize that it was a speculative deal in the first place. One North Carolina-based dealer tells AN [sub]I’m not going to sue anybody. What good would that do? We all knew this was a gamble when we got into it. We did it anyway. And I still believe it’s going to work out.But that tune may change. Though Mahindra insists thatWe are working diligently to bring the product to market… It will be our endeavor to not let this dispute and the changed business circumstances affect our plans to introduce our vehicle in the United has rejected a $35m order from Global Vehicles for 2,000 pickups as recently as September 24. Mahindra had previously rejected two GV orders last year, allegedly for insufficient funds, a charge Global denies. Meanwhile, Mahindra denies that it ended the relationship, pointing to a June 11 deadline for consummating the deal between GV and Mahindra, which GV refused to extend (having already done so several times). That walk-away clause was literally penciled into the contract between GV and Mahindra at the last minute, an AN [sub] claims that acopy of the penciled-in addendum provided by Perez does not fully explain whether Mahindra had the right to unilaterally walk away after the June 11 extension. The fact that the EPA didn’t certify the Mahindra engine until after the extended deadline indicates that Mahindra may just have the law on its side.Of course, there was one more issue, best summarized by Automotive News [sub]Perez acknowledged that he was arguing with Mahindra over financial matters. He said Mahindra asked him to have $29 million in his bank account to cover marketing and advertising costs for the truck’s entire first year of sales. Perez balked, arguing that no such requirement was in his contract. On top of that, he argued, marketing is not funded that way in the U.S. industry. He told Mahindra that marketing funds are collected from the sale of vehiclesBut even this issue isn’t simple. Mahindra now claims that disagreements over marketing strategy played a role in its dumping of GV, but back in May when the deal’s issues were first starting to hit the press, Mahindra’s Pawan Goenka agreed that GV had enough cash on hand and that a marketing deal had been hammered out:Mahindra would pay for a pre-launch brand advertising campaign to help U.S. consumers understand what Mahindra is. Mahindra and Global together would pay for marketing during the actual launch, he said, and Global would then take over the cost of post-launch co-op dealer advertisingWith certification done, cash and a marketing plan in place and dealers ready to take delivery, GV’s Perez is mystified as to why Mahindras aren’t on sale in the US yet. He saysI wonder all the time: Why is this happening? Why is this happening? I thought we were friends.With no answers forthcoming from Mahindra, Pere and his investors look to be out some $57m, about half from dealers, and half from investors. Perez insists that all the money has been invested into the business, sayingWe’re clean. Our books are audited every year. I can lay my head on my pillow at night and sleep good

But can Mahindra? Meanwhile, will we ever get those funky Indian diesel-powered pickups? Given how Mahindra has treated its US distributorship, one wonders whether its customer service is equally unrelenting. On the other hand, Perez says he’s willing to let bygones be bygones and resume the deal. Unless Mahindra has a great reason to avoid its patient distributor (in which case, it should share said reason), it should just close the deal already and start shipping pickups. More legal wrangling won’t help sales of an unknown brand in a market that’s as competitive as the US.

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3 of 16 comments
  • DougD DougD on Oct 11, 2010

    A copy of the contract won't tell the whole story. Working for a company that's done business selling machinery into India, a contract is only a preliminary step in the negotiating process. Anything and everything is up for discussion after the contract is signed, and you never get all your money. When doing business with a completely different culture with a greatly differing concept of ethics and truth, you are naiive to assume anything. Good luck to Mr. Perez, he's going to need it and a lot more...

    • Alex Hannan Alex Hannan on Oct 13, 2010

      What, as if the concept of "ethics and truth" in our own culture is anything to be proud of?

  • Mike Czernik Mike Czernik on Oct 12, 2010

    And to all those who want to see what type of company Mahindra is, please look no furhter than Satyam (NYSE symbol SAY). They had to delist recently since they could not meet the captiall and accountig requirments of the exchange. sAY has been tanking

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