New Delhi: Undeterred by plummeting vehicle sales in the US, Mahindra and Mahindra Ltd is pushing ahead with plans to launch its two- and four-door pickup trucks in the world’s biggest market for such vehicles by December.
Strategy intact: Mahindra and Mahindra’s Pawan Goenka. Ashesh Shah / Mint
A pickup truck is a vehicle with an open top rear cargo area and front-seating cab area for the driver.
“All these plans remain unchanged for the very simple reason that the value proposition we have actually becomes stronger in the current situation,” says Pawan Goenka, president of the automotive sector at M&M, as the firm is called in short. “In fact, I wish we could launch sooner. Right now is the time to go in.”
The pickup trucks will be based on the same platform—assembly line, engine and transmission technology, chassis and other infrastructure—as the one M&M developed and uses for its Scorpio sport utility vehicles (SUV).
Goenka, who says the pickup trucks will be competitively priced, points to what is expected to be M&M’s main selling point in the US: top-of-the-line diesel technology, which is seen as green and would deliver higher mileage. Unlike India, most small trucks in the US are primarily petrol driven.
M&M, which already sells tractors in the US, also plans to launch its SUVs about a year after the pickups.
Tapping the recession-hit American market, where vehicle monthly sales have plunged at least 35% since September, is going to be a significant challenge for the company. It’s worked hard to get environmental clearances and has modified its pickups significantly—brakes, airbags, styling—for the US launch.
Without referring to the amount spent on developing the Scorpio-based pickup trucks for the US, Goenka said a company needs to spend around 50% over the cost of developing a platform in India for such an offering in North America.
M&M spent Rs550 crore on the Scorpio platform.
The turmoil in the US is helping M&M because there are several dealerships available on the cheap. Global Vehicles USA Inc., a Georgia firm that will distribute the Indian firm’s vehicles in the US, has already lined up 334 dealers.
John Perez, chief executive of Global Vehicles, says each franchise has put up $195,000, or nearly Rs1 crore, for parts, training mechanics and salespeople and advertising.
Global Vehicles, which has put $65 million into the venture so far, plans to add another $30 million in marketing costs. Perez says he plans to take Mahindra’s pickups and display them at football games, school events and hunting tournaments. His first-year target: to sell 25,000 trucks in the first year. “That works out to seven or eight trucks per dealer per month, which is attainable,” he says.
In partnering with Global Vehicles, M&M has been able to save significantly on costs. “If Mahindra were to build a ground-up full-fledged dealer network across 50 states and major population centres, the set-up costs would be between $800 million and $1 billion,” says Vikas Sehgal, partner at consulting firm Booz and Co.
For now, M&M will import pickups into the US as completely built units at a 25% duty from India. While Goenka declined to say when it would be viable for the firm to assemble them in the US, Perez believes it will be once sales cross 50,000 units a year—a tiny sliver of the two million such trucks sold in that country.
In the past, new entrants to the US market had an uphill ride for many years.
“A lot will depend on the pricing strategy and how much marketing they do,” says Rakesh Batra, national automotive leader at Ernst and Young, a consulting firm.
Batra points to Hyundai Motor Co., whose sales languished in the US for many years until the Korean firm decided to offer a 10-year warranty. Sales at Hyundai in the US fell only 13% last month, compared with 30% declines for both Ford Motor Co. and General Motors Corp., according to Motorintelligence.com, a website monitoring the global auto industry.