Mahindra & Mahindra is an indigenous Indian automotive firm that commands less attention than the automotive division of the colossal conglomerate that is Tata Group. But the company that began making Jeeps in 1945 is growing steadily and is now highly active as an exporter. And it is developing more sophisticated models for export markets too, writes Mark Bursa.
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The Indian automotive sector has been overlooked in the past few years while the spotlight has been on China. While Indian market growth hasn’t been as spectacular as China’s market explosion, the market is strong – and the leading Indian-owned car makers are gearing up their export activities in a bid to become globally-recognised players.
Much of the attention has focused on Tata, India’s biggest industrial corporation, and its US$8bn acquisition of Anglo-Dutch steelmaker Corus. But Tata’s automotive activities have focused on the domestic market – and will continue to do so until its alliance with Fiat starts to bear fruit.
For now, the Indian company that is most active in the global automotive market is Mahindra & Mahindra. Specialising in utilitarian 4×4 vehicles with roots stretching back to the World War Two-vintage Willys Jeep, Mahindra has been around for more than 60 years. It’s dabbled with exports before, selling its CJ Jeep-derived models in Europe in the early 1990s.
But now, with new, more sophisticated models in its line-up, Mahindra is staging an export comeback as part of a globalisation strategy that also includes buying up overseas components makers and setting up assembly operations in other emerging markets.
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By GlobalDataThese initiatives are supported by an Indian government that is keen to foster India as a destination for the manufacture of cars and automotive components. Earlier this year the government unveiled a ten-year plan to boost the turnover of the Indian automotive industry from US$34bn to US$145bn by 2016. This growth will come from a mixture of overseas investment in India – global carmakers have invested nearly US$3bn over the past year alone – and growth from Indian firms.
India offers good conditions, with plenty of well-trained engineers and low labour costs – skilled factory workers earn between US$1 and US$5 per hour in this region, against US$20-25 per hour in North America, Japan or Western Europe.
On top of that, Indian companies are more sophisticated and experienced as global players than their Chinese counterparts. In 2006 across all industries, Indian companies have so far announced more than 130 acquisitions overseas, estimated to be worth nearly US$19bn. By comparison, foreign direct investment (FDI) in India between January and July was estimated at US$4bn – turning India into a net exporter of capital.
Mahindra & Mahindra has been highly active as an acquirer, buying Stokes, a UK-based automotive forging company, the tractor manufacturing assets of China’s Jiangling Motor, and Jeco Holding, a German forging company. With a global turnover of US$3bn, Mahindra Group is among the top ten Indian companies.
And at the Paris Show in October, it showcased a range of exportable SUVs and pick-ups which will spearhead its expansion into global automotive markets. The process has already started, and while the numbers are small at the moment, Mahindra’s exports are on a rapid growth curve. The group exported a mere 92 units in May; 118 units in June; 351 units in July; 672 units in August and 779 units in September 2006. Mahindra is gaining fast on Tata, which exports around 2,500 vehicles a month at present.
Mahindra sells its cars successfully in South Africa, and has just agreed a deal to build the Goa SUV in Brazil, in partnership with local company Bramont. This will use a plant in Manaus, Northern Brazil, built originally to assemble the Crosslander, a version of the Romanian ARO SUV. However this project failed to get off the ground, and Goa production will start in 2007. Initial local content will be 20%, rising to 80% in two years.
Mahindra has also struck a deal to assemble pick-ups in Malaysia from 2007, through an alliance with USF-HICOM, which already distributes the Mahindra Scorpio model in the country. However, a plan to build the cars in Russia with GAZ has encountered problems and appears to have stopped after only 100 CKD kits were assembled.
In Europe, exports started in Spain and Italy earlier in the year. The group’s European subsidiary, Mahindra Europe SrL, is based in Italy, and selects private distributors for other markets. The cars are now also on sale in some East European countries and in France, where Lada distributor SDPM as been appointed as local distributor. Sino Motors is the official distributor in Spain. Other markets will follow, including the UK, where the ubiquitous IM Group looks set to clinch the contract. Over the next couple of years, Mahindra wants 20% of its sales volume to come from our overseas sales.
The new models showcased at the Paris Motor Show are a significant step up from the ‘Jeepalikes’ sold a decade ago – though their looks reveal their roots. The most impressive model is the Goa, while the Peugeot-engined Bolero single-cab and double-cab pick-ups also looked saleable as utility or lifestyle vehicles thanks to Jeep-like looks, 2.6-litre 109bhp common-rail diesel engines developed with input from Bosch and Austria’s AVL, and optional four-wheel drive.
Dr. Pawan Goenka, Mahindra President, Automotive Sector, was taking a bullish stance: “M&M is looking to evolve as a cult brand in the global market. We are looking to create strong brands that people globally will identify with. The vehicles at Paris comprise the range that will get us there. The success of our vehicles in markets like South Africa, Europe and other markets is also proof of the fact that Indian automotive companies have the mettle to compete with global players.”
Mahindra took a novel approach to designing the Goa – called Scorpio in India – leveraging components suppliers from an early stage in the design process and simultaneously engineering the vehicle with them. This process, which Mahindra calls Innovative Design and Manufacturing (IDAM), involved US suppliers Lear Corporation, Visteon, Dana and Borg Warner; Germany’s Behr and Bosch; Japan’s Fuji and Sylea of France. The car’s independent suspension with torsion bar in front and five-point multi-link on the rear was developed with the help of Lotus Engineering of the UK.
The Goa cost US$120m to develop, which is very cheap by global standards especially when considering that half of the cost went into setting up a production line. It was money well spent – the car accounts for 30% of Mahindra’s automotive revenue.
Further investment is being made in R&D, including setting up a major R&D centre called Mahindra Research Valley near Chennai. This should concentrate product development in one place when it opens in 2008/09
While much of the focus at Mahindra is on building the company’s own brand, in India it is also providing Renault with its long-overdue entry to the market, having established a US$165m joint venture last March to assemble the Dacia Logan “emerging markets car”. This is a significant deal for Renault as India is a right-hand drive market, which means Mahindra will be the global RHD hub for Logan, supplying CKD kits to South Africa and, eventually, CBU vehicles to RHD markets such as the UK.
The JV has yet to start production, but the relationship between Mahindra and Renault appears to be a good one – and the partners are close to agreeing to expand it to launch more Renault models in India, according to Indian media reports.
Under the terms of the existing deal, the JV will build up to 50,000 cars a year beginning in 2007 for Indian buyers. Mahindra owns 51% of the company, with Renault holding the remainder.
The Renault deal effectively replaces an earlier JV with Ford. It’s worth noting that Mahindra has maintained a majority stake in the Renault JV in order to avoid repeating the Ford experience, where Ford gradually bought out Mahindra’s share, dissolving the JV last year. Mahindra used the money raised to develop the Goa – but clearly the company wants to keep one foot in the JV camp as well as going it alone.
The learning curve may be steep, but Mahindra is moving upwards.
Mark Bursa
