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Mahindra’s Re- Entry into US Auto Market

National University

Mahindra’s Re- Entry into U.S. Auto Market

Prakash Nallaiah IBU 606 -Global Business 12/21/2019

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Abstract Mahindra is an Indian Multi-National Corporation attempted to enter into the US Automotive market by launching a low-cost pick-up truck. But failed to meet the regulatory emission and crash test norms conducted by US Environmental Protection Agency, resulted in closing its business from the US market temporarily. After seven years, the company reentered the US market with the product named Roxor, a S*S utility vehicle. Roxor is a successful product of Mahindra’s Automotive division which has received more orders than anticipated. Fiat Chrysler Automobiles (FCA) has filed a case against Mahindra claiming that the Roxor has got the same design as old CJ Jeep of FCA. Who is Mahindra? The Mahindra Group is an Indian multinational conglomerate holding company headquartered in Mumbai, Maharashtra, India. It has operations in over 100 countries around the globe. The group has a presence in aerospace, agribusiness, aftermarket, automotive, components, construction equipment, defence, energy, farm equipment, finance and insurance, industrial equipment, information technology, leisure and hospitality, logistics, real estate, retail, and two wheelers. It is one of the most reputable Indian industrial houses with market leadership in utility vehicles as well as tractors in India. History of Mahindra & Mahindra Mahindra & Mahindra was founded as a steel trading company on October 2, 1945

in Ludhiana as

Mahindra

&

Muhammed

by

brothers Kailash

Chandra

Mahindra and Jagdish Chandra Mahindra along with Malik Ghulam Muhammad. Following the partition of India in 1947, Malik Ghulam Muhammad left the company and emigrated to Pakistan where he became the first finance minister of the new state (and later the third

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Governor General in 1951). In 1948, K.C. Mahindra changed the company’s name to Mahindra & Mahindra. It eventually expanded into Manufacturing and selling larger MUV’s, starting with Willy Jeep’s in India. The company started manufacturing Light commercial vehicles and Agricultural Tractors. Mahindra began assembling the Jeep CJ3 in 1954, and light commercial vehicles in 1965. In 1979 the licensed assembly of Peugeot diesel four-cylinder engines and transmissions began, and in 1982 a tie-up with Kia Motors to build their fourspeed KMT90 transmission and transfer case was announced Mahindra's MM range was a mainstay of the line-up and was eventually also offered with a 1.8-liter Isuzu petrol engine in addition to International and Peugeot diesels. Mahindra started making passenger vehicles firstly with the Logan in April 2007 under the Mahindra Renault joint venture. M&M made its maiden entry into the heavy trucks segment with the Mahindra Truck and Bus Division, the joint venture with International Truck, USA. They even entered the 2-wheeler industry by taking over Kinetic Motors in India. M&M also has a controlling stake in the REVA Electric Car Company and acquired South Korea's SsangYong Motor Company in 2011. M&M has also extended its hand in micro drip irrigation by taking over EPC industries Ltd in 2010-11. Mahindra maintains business relations with foreign firms like Renault SA, France. Later, M&M acquired Peugeot Motorcycles. M&M and Tech Mahindra Ltd joined hands together to buy a 76.06% stake in Italian Car designer Pininfarin Spa through special purpose vehicle. Also, Mahindra & Mahindra entered Turkey by acquiring 75.1 equity stake in Hisarlar Makina Sanayi ve Ticaret, a farm equipment company and Later, M&M Ltd acquired Erkunt Traktor Sanayii AS.

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Mahindra produces a wide range of vehicles, including MUVs, LCVs and threewheelers. It manufactures over 20 models of cars, including larger, multi-utility vehicles like the Scorpio and the Bolero. In 2019 it had a joint venture with Ford called Ford India Private Limited to build Passenger cars. Global Presence Mahindra exported its products to several countries and its subsidiaries include Mahindra Europe S.R.L., Mahindra USA Inc., Mahindra South Africa and Mahindra China Tractor Co. Ltd, Mahindra Philippines. In 1969, Mahindra established its export division with its first order of 600 jeeps for the Yugoslavian market. This was the beginning of Mahindra Journey to expand its global footprint. In 1970, Mahindra started exporting vehicles to Nigeria and other African countries. Currently, M&M has presence in 15 markets of Africa. Also, Mahindra exported of about 3300 units mainly to Indonesia and Yugoslavia. In 1990’s, Mahindra started exporting to Nepal in early 90’s and today Nepal is one of Mahindra’s key Markets around India. In 2000, The Bolero is launched, and Mahindra increased its global aspirations and expanded further afield. In early 2000s, Mahindra entered into Tanzania, Sri Lanka, Congo, Madagascar, Mozambique, Ethiopia, Rwanda and Burundi Markets. In 2002, Mahindra launched India’s first indigenous SUV(Scorpio) which is a major milestone of Mahindra. The Scorpio was successful from the day it is launched and one of the most exciting products ever developed by M&M. The Success of Scorpio in India

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enhanced Mahindra’s global ambitions and in addition to Scorpio, Mahindra also developed Mahindra Pick Up exclusively for Overseas markets. In 2005, Mahindra Europe is established in Italy with the launch of Scorpio and Bolero Pick Up. Mahindra also entered into other European market in the same year. In 2006, M&M launched products solely for the overseas market and in 2007 Mahindra stepped into Bhutan, Morocco, Algeria, Ghana, Chile and Peru with Mahindra Pick up. In 2008, Mahindra started its first overseas CKD operations in Egypt with the launch of the Mahindra Scorpio by joining hands with the Bavarian Auto Group followed by assembly facilities in Brazil. Vehicles assembled at the plant in Bramont, Manaus, include Scorpio Pick-ups in single and double cab Pick-up body styles as well as SUV’s. Same year they have entered in Australia and Paraguay market. In 2009-10, Mahindra Thar is launched in Italy and South Africa. In 2011, Mahindra expands its foot print Uruguay, Ecuador and

launched Mahindra XUV 500,

the first global SUV designed and developed inhouse by Mahindra with significant inputs in styling and development from customers across the globe. In 2011, the global launch of Mahindra’s Next Big Pick up exclusively for International Markets, Mahindra Genio was accomplished. In 2012, The market of Columbia was opened to strengthen the presence in South America. In 2015 Mahindra acquired Pininfarina SpA Italy based high performance sports car design and manufacturer. In 2016 Mahindra acquired GenZe and American electric scooter company. In 2017 Mahindra North America factory launched.

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Mahindra’s entry in USA Farm Division: In 1994, Mahindra USA, Inc. (MUSA) was established in Tomball, TX as a wholly owned subsidiary of Mahindra & Mahindra’s Automotive Farm sector (AFS). It has a sales and service network throughout the country. Mahindra USA, a subsidiary of Mahindra Tractors, is responsible for sales in North America. Mahindra has five assembly plants in the US—one at its North American headquarters in Houston, Texas, another in Marysville, California and one in Chattanooga, Tennessee. In August 2012, Mahindra USA opened its fourth assembly and distribution centre in Bloomsburg, Pennsylvania. In 2014, Mahindra USA opened its fifth assembly and distribution centre in Kansas. Mahindra USA expanded its product line to Retriever (UTV) and MPACT XTV utility vehicles. Automotive Division Entry and Re-entry In 2004 Mahindra chalks out plans to become India’s first automobile manufacturer to sell utility vehicles in U.S. Mahindra & Mahindra tried to break into the US automobile markets with a low-cost Scorpio pickup truck. Before the product was ready, M&M thought it would be a good idea to test the market. They got into a distribution tie-up with Global Vehicles, whose job was to find dealers who would invest in setting up a Mahindra dealership. Global Vehicles had found 350 such dealers interested in selling the Mahindra pick up. M&M spent the next three years trying to launch the truck. It never

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happened. Global Vehicles which was under fire from dealers that it had set up for Mahindra placed a $ 30 million order on M&M to supply the pickup trucks. M&M rejected the order saying it was invalid because its contract with Global Vehicles had ended in early 2010. Global Vehicles and M&M head to the courts. Even while it was fighting Global Vehicles in court, M&M maintained that the trucks would be launched by end 2010 after meeting the necessary regulatory clearance and that it was looking at launching the product directly with dealers. Much later than it had anticipated, M&M received the emission certificate from the US Environmental Protection Agency (EPA). The Mahindra TR40 crew cab model with a four-cylinder diesel engine and automatic transmission was rated by the EPA at 19/21 mpg city/highway. A far cry from the claimed 30 mpg and its failed to match crash test norms. M&M says a London arbitration panel has ruled in favour of M&M and dismissed claims by Global Vehicles that an exclusive US distribution agreement established in 2006 was violated. Mahindra’s first try into the US auto market was a disaster because it failed to meet federal emissions standards and crash test. Later, the company decided not to go into direct competition with major automakers, but to enter the less heavily regulated niche market for off-road recreational utility (SxS) vehicles to sell in rural America by introducing its brand with Roxor. The Roxor is based on the design of the Jeep CJ of the 1960s, and Willys CJ of the 1940s. Mahindra was granted a license in 1947 to use the Jeep and CJ trademarks, and Willys originally shipped complete vehicle kits directly to Mahindra. Over time, the vehicles were localized in India. The body design and a significant portion of its mechanical architecture remain largely untouched. In the US off-road UTV market, it has a roll-over protection system (ROPS), which creates the upper body structure and is attached directly to the fully boxed frame. It has a single gauge speedometer on all variants, with digital fuel, odometer, and tachometer gauges.

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Roxor sales surges than anticipated sold around 3000 vehicles. Current production capacity Auburn plant is 30 vehicles per day. Which is at full capacity. To meet the demand Mahindra planning to open another manufacturing facility in Flint, Michigan. To make vehicles including next generation mail delivery trucks for the U.S. market. Eventually Mahindra planning to introduce street legal vehicles, but this time around, it hopes to avoid reliving the disaster that was its first attempts to sell vehicle in the U.S. Mahindra plans to focus on its image of building rugged, durable vehicles and wants Americans to associate its name with rugged adventure vehicles.

Organizational Readiness: Mahindra Automotive North America (MANA) is part of Mahindra Group and a new NA automotive headquarters is opened in Auburn Hills, MI. Metro Detroit is the first OEM manufacturing/assembly facility to open operations in Southeast Michigan in over 25 years. MANA is established in 2013 as an automotive design, engineering and vehicle development centre. MANA works with Mahindra automotive teams in India, Korea & Italy. plays key role in growing Mahindra’s global automotive business. MANA created 300 new jobs and invested $230 million in Southease Michigan and anticipates creating an additional 400 jobs and invest another $600 million by 2020. MANA is led by Richard Haas, a former executive at Ford Motor and Tesla. Team Led by an expert team of designers and engineers selected from today’s most innovative and highest performing organizations (Tesla, Ford, Boeing and Apple, among others). ROXOR was designed, engineered and is being produced in Metro Detroit by Mahindra Automotive North America (MANA). Roxor’s are assembled with about 50% local content, by value and sold across US and Canada. Mahindra has signed up a network of 390 Powersports dealers all over the country to sell the Roxor.

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Ford joined hands with Mahindra to expand its market share in India and Mahindra gets mutually benefit of expanding outside of the subcontinent.

Roxor Legal Issue with FCA Fiat Chrysler Automobiles, owner of the Jeep brand, filed a complaint in August 2018 with the U.S. International Trade Commission to halt sales in the US, saying the design infringed on FCA's copyrights. Mahindra and Mahindra and its Mahindra Automotive North America division filed a public-interest statement with the trade commission on August 22, 2018, asserting that the recent complaint filed by FCA U.S. is without merit. FCA US has found that the Mahindra Roxor vehicle infringes the iconic trade dress of the Jeep brand. FCA US believes the evidence and relevant law all strongly support the ALJ’s determination that Mahindra has engaged in unfair trade practices, and that Mahindra’s infringement was harming or likely to harm the Jeep brand and FCA US. Unsurprisingly given the striking resemblance the Roxor's boxy body shape with flat vertical sides, rear body panels that are roughly the same height as the hood, the door cut-outs that go above the bottom of the side, exterior hood latches, a mostly flat and rounded-edge hood tapering toward the front, the "4.5-slot" grille. Mahindra has a very different perspective on this matter. "The relationship began in the 1940s with the original agreement with Willys and continues to this day, with the most recent agreement executed with FCA (then Chrysler Group LLC) in 2009.Mahindra actions, products, and product distribution (including ROXOR) both honour the legacy of the relationship and the terms of our agreements with FCA. Mahindra has been co-existing with FCA (and the Jeep brand) for over 25 years in India and in many other countries. Since its not legal for road use here in America, Mahindra claims it’s not a real competitor to modern

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Wrangler. It could also be argued that the Wrangler's off-road prowess is what makes it unique, and the Roxor's close resemblance to the Jeep infringes FCA's trademark on the design. Mahindra Thar based Roxor is substantially updated, with a newer turbo diesel engine, anew transmission and a box steel frame that weren’t included on the original CJ. When renewed that licensing agreement for the Indian market in 2009, it was also considering selling a mid-size SUV called the Scorpio in America as its first product here with a very Jeep-like seven-slot grille. FCA and Mahindra signed a deal okaying the Mahindra Scorpio with a different five-slot grille in exchange for FCA not taking legal action against it. The Scorpio never made it over, but the agreement remains active, and in January Mahindra tried to argue it protects the Roxor using the okayed 4.5-slot grille. The U.S. International Trade Commission disagreed and allowed FCA's intellectual property case to proceed, leading to this most recent ruling. In November 2019 the Administrative Law Judge (ALJ) has in its initial determination found, that while the design of the Roxor vehicle does not violate any of FCA’s registered trademarks, it does violate FCA’s trade dress. ALJ recommended a cease-anddesist order be granted preventing Mahindra from selling any more Roxors, including already-built models in dealer showrooms. Mahindra filed a case in USITC against the ALJ’s decision and Ultimately, the ALJ’s opinion is only a recommendation, and we have asked the entire ITC to review it. The ITC has the discretion to either adopt the ALJ’s opinion in whole or in part, rewrite parts of it, or completely reject it. Therefore, it is very important to wait for the ITC review to be finalised.

Conclusion Mahindra, an Automotive company from a developing country faced many challenges in making its foot print into developed country. The failures and problems were faced due to the

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lack of pre-study about the protocols being followed by the host country. While expanding company’s business by FDI company must work well on their VRIO resources and capabilities framework, and product life cycle theory about their products position in the host country. Otherwise company may lose its customer’s trust in the initial days itself. It may lead to the company’s failure and exit from the host country.

References Global Business – by Peng, Mike W

Mahindra takes second crack at U.S. auto market with “India tough” off roader. By - Nick Carey, Ben Klayman, March-14, 2019

https://www.reuters.com/article/us-usa-autos-mahindra/mahindra-takes-second-crack-at-u-sauto-market-with-india-tough-off-roader-idUSKCN1QV1H0

Why Mahindra’s pickup truck foray in the US failed. By- Ashish K Mishra, June – 13, 2012

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http://www.forbesindia.com/blog/business-strategy/why-mahindras-pick-up-truck-foray-inthe-us-failed/

Update 2 -Ford ties up with Mahindra in India to cut risks and costs. By – Promit Mukherjee and Aditi Shah, October – 1, 2019.

https://www.cnbc.com/2019/10/01/reuters-america-update-2-ford-ties-up-with-mahindra-inindia-to-cut-risks-and-costs.html

Indian automaker Mahindra considers second US plant in Michigan. Published August – 8, 2019.

https://www.cnbc.com/2019/08/08/indian-automaker-mahindra-considers-second-us-plant-inmichigan.html

Jeep-like ATV looks like a toy — but Mahindra means business. By – Mark Phelan, August -31, 2019.

https://www.freep.com/story/money/cars/mark-phelan/2019/08/31/mahindra-roxor-atvtractor-jeep-review/2132430001/

Judge says Mahindra's Roxor looks too much like a Jeep; recommends banning US sales. By – Mark Phelan, November- 29, 2019.

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https://www.freep.com/story/money/cars/mark-phelan/2019/11/29/fca-jeep-mahindra-roxoratv/4333127002/

Mahindra Automotive North America

https://www.mahindraautomotivena.com/about

Mahindra U.S.A Farm Division

https://mahindrausa.com/company

Mahindra Automotive North America Opens New HQ and Manufacturing Facility in Metro Detroit as Part of North American Growth Strategy. PR News wire – November – 20, 2017.

https://www.prnewswire.com/news-releases/mahindra-automotive-north-america-opens-newhq-and-manufacturing-facility-in-metro-detroit-as-part-of-north-american-growth-strategy300559475.html

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