Mahindra Bullish on U.S.
Indian Firm Believes
Diesel SUVs, Pickups
Can Buck Downturn
By JOHN D. STOLL
July 4, 2008
The head of Mahindra & Mahindra Ltd.'s automotive business said the Indian company remains bullish on its chances of success in the U.S. starting next year despite the collapse of the markets for pickup trucks and sport-utility vehicles, the only two product categories in which it can currently compete.
Pawan Goenka, the company's automotive president, in an interview expressed mild interest in talking to General Motors Corp. about potentially purchasing the auto maker's slumping Hummer division. But he said the two sides haven't had serious talks and that an acquisition probably "doesn't make any sense for us."
Instead, Mr. Goenka plans to take a small Mahindra-badged pickup to the U.S. next summer, and follow up with a midsize SUV, likely sometime in 2010. Mahindra and its distribution partner in the U.S. have delayed the SUV launch, partly because of shifting market conditions.
Mr. Goenka said that even though those two body styles have fallen out of favor -- due to their association with poor fuel economy -- Mahindra's plan to fit the vehicles solely with diesel engines will immediately put the brand on the map. Eventually, the company plans to launch crossovers and hybrid vehicles into the U.S.
"If anything, the current situation makes our vehicles more desirable," he said, pointing to the recent success of smaller crossover SUVs as evidence that there is still life in the segment. Given that Mahindra is a new brand in the U.S., Mr. Goenka said people may be willing to take a flier on its diesel vehicles, which typically offer 20% to 30% better fuel economy than gasoline-powered ones.
Mahindra vehicles are already sold in several markets around the world, but tens of millions of dollars are being invested in an effort to re-engineer the vehicles for U.S. standards and consumer tastes.
Still, Mahindra's bet on the U.S. is risky.
The overall light-vehicle industry is moving at what is at least a decade-slow pace, and truck sales have declined by 28.4% this year as consumers wrestle with gasoline that costs more than $4 a gallon.
Mr. Goenka believes there is still core demand for trucks and SUVs in the U.S., especially among commercial buyers and families looking for roomy transportation. Mahindra is betting on the combination of utility and efficiency to help it sell at least 10,000 vehicles annually, which would be enough to break even in the U.S. business.
Diesel prices typically run at least 15% higher than gasoline. Diesel fuel costs have increased faster than gasoline over the past year in the U.S.
That means that the economic benefits of a more-efficient diesel engine will be somewhat offset.
When it comes to alternative fuels, Americans typically prefer hybrid-electric vehicles, such as Toyota Motor Corp.'s Prius. General Motors is investing heavily in vehicles that run mostly on batteries.
Although Mahindra's distribution partner in the U.S. -- Global Vehicles USA, based in Atlanta -- has signed up about 300 dealers to distribute the vehicles, the brand is unfamiliar to most Americans, who either associate the name with tractors that are sold in the U.S. or haven't heard the name at all.
Mahindra and its distributor plan to spend about $50 million on advertising annually, said Global Vehicles' marketing chief, Xavier Beguiristain. Mahindra and Global Vehicles, which is closely held and independent of Mahindra, will both contribute to the budget.
Global Vehicles recently began a study of U.S. buyers who might be interested in Mahindra vehicles. Mr. Beguiristain said the results, though incomplete, are encouraging. "The India thing is not a big deal so far, and the diesel thing is not a big deal so far," he said. Mr. Beguiristain said consumers indicate they are interested in the off-road capability of Mahindra's vehicles.
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