US court battle jams Mahindra's gear

Pick-up trucks are making a strong comeback in the United States, clocking a 29 per cent jump in July over the same month last year, soundly beating a five per cent climb in overall auto sales.

But what might be a perfect opportunity for India’s auto giant Mahindra & Mahindra to pull off a successful vehicle launch in a slow economy is clouded by a legal dispute.

The company had earlier said it would sell its Indian-made four-door and two-door diesel pick-up trucks in the US market by the end of the year. Instead, it has been sued by the Alpharetta, Georgia-based Global Vehicles USA, which was to be the exclusive distributor for the Mahindra trucks in the US. The long-running story of announcements and repeated delays has also earned Mahindra a fair amount of negative attention and scepticism about its plans for this market.

Falling out
Global Vehicles filed for arbitration proceedings in June, seeking to force Mahindra to fulfill its orders for trucks, and followed with a lawsuit in a federal court in Atlanta in July. Mahindra has filed a motion seeking dismissal of Global Vehicle’s complaint.

The American company wants to pre-empt any plans Mahindra may have to tie up with another partner or work directly with dealers. Global Vehicles states in its revised complaint to the court that Mahindra had declared that their agreement – signed in 2006, for an initial period of 10 years – stood terminated on June 11, the day it filed for arbitration. Describing this as a wrongful termination, it has also asked the court to ensure Mahindra would not sell its trucks to anyone else or directly to dealers.

But despite what it says were repeated delays since the original launch target of August 2008, and irregular communication over the years, Global Vehicles insists it wants the arrangement to continue, having spent $35 million on signing up around 350 dealers across the US and preparing for the launch. The dealers have spent another $60 million, according to the distributor.

“Our goal remains to get the trucks from Mahindra,” says Global Vehicles spokesman, Mike Geylin, who adds that under their contract, they were to be the exclusive distributor in the US for Mahindra’s pick-up trucks as well as subsequent passenger vehicles.

The partnership seems to have unravelled over the past couple of years. While Mahindra was apparently concerned that its partner did not have adequate financing, Global Vehicles insists it had, on the lines of their agreement, and says Mahindra repeatedly refused to honour its purchase orders for the trucks.

The distributor has also accused Mahindra of deliberately delaying safety and emission tests required for US government approvals.

“We are yet to hear that they have received federal certification (from the Environmental Protection Agency) or started production. Based on industry practices, we’re concerned because a company would have the certification by now and begin production for December delivery,” says Geylin.

Mahindra did not respond to queries for this story. But a statement on its website says it is working on satisfying all US requirements and intends to file a final application soon. It also says it remains committed to launch its products in the US.

The dealers are watching anxiously. Larry Neuwirth of Safeway in Burgaw, North Carolina, among those who have signed up to sell the Mahindra trucks, hints darkly that “there’s more to it than we all know” but is nevertheless optimistic that “everything will get worked out between the two and the trucks will be here in December”. He says he already has orders from customers for the trucks.

Market exists
Like Neuwirth, other dealers agree the new vehicles would be a welcome addition. Given their promised mileage of about 30 miles per gallon, and an expected price range around $20,000, the dealers expect the trucks to do well even in a sluggish auto market. Says Geylin: “This vehicle has unique qualities. There’s currently no small diesel pick-up truck in the US and none is planned.”

Moreover, Mahindra is actually a familiar brand, especially for potential customers of the diesel pick-ups. The company has been selling its tractors in the US for over 15 years.

A dealer in Georgia, who did not want to be named, said Mahindra’s tractors are known and respected for being tough, rugged and well made machines.

But the dealers also believe Mahindra would find it tough to go it alone and that its experience with tractors would not necessarily translate to the pick-up market. “They would need somebody to market and distribute these trucks in this country,” says Neuwirth.

As part of its suit, Global Vehicles has sought an injunction prohibiting Mahindra from communicating with “any and all dealers who are part of the Global Vehicles network” until the dispute is resolved. But the dealers wish somebody would tell them what was going on. Says Neuwirth, “We’re not in the loop but we should be.”