Mahindra to Help India Beat China to U.S. Auto Market

June 17 (Bloomberg) -- Mahindra & Mahindra Ltd., India’s largest maker of sport-utility vehicles, is betting its diesel pickup trucks can beat the Chinese to the U.S. market.

Early next year, Mumbai-based Mahindra plans to start selling small 2- and 4-door pickups with a diesel engine that meets California’s strict exhaust rules. U.S. plans for Chinese brands such as Chery Automobile Co. and Geely Automobile Holdings Ltd. have yet to materialize, five years into their announcements.

“Once you establish the brand, volumes will come,” Pawan Goenka, Mahindra’s president in charge of the automotive business, said in a June 16 interview. “There is a hole available to us which is not populated.”

Mahindra’s trucks will arrive in the U.S. even as recession and job losses have pushed auto sales to the lowest in three decades, triggering bankruptcy filings for General Motors Corp. and Chrysler LLC. A weak economy and cheaper diesel prices may help the Indian automaker win buyers seeking a bargain, said industry analyst Eric Noble.

“It’s not a bad time to launch a durable, value-oriented brand,” said Noble, president of Car Lab, an Orange, California-based consulting firm for automakers. “There’s no real competition in compact trucks with a diesel powertrain.”

“Totally Unknown”

With a brand that’s “totally unknown” to U.S. customers, an Indian automaker will face the same challenges Hyundai Motor Co., Toyota Motor Corp. and Honda Motor Co. faced when they entered the world’s largest economy, said Puneet Gupta, a New Delhi-based analyst at CSM Worldwide Inc. In India, Mahindra makes Scorpio and Bolero SUVs.

“It’s a big challenge,” Gupta said. “Selling a very cheap vehicle may not work. Selling in a matured market may also spoil your reputation if your product is not up-to-the expectations of customers there.”

Mahindra’s shares have more than doubled this year in Mumbai trading. That’s the best performance in the benchmark 30- share Sensex index during that period.

The vehicles will be “competitive” with similar vehicles in the range of $20,000 to less than $30,000, Goenka said, without giving a specific price. The company has spent between $60 million and $70 million in reworking its Scorpio SUV into a pickup for the U.S. market. Mahindra has set up a network of 336 dealers throughout the country.

Fuel Economy

Mahindra expects the pickups to get at least 30 miles per gallon in highway driving and carry a payload of at least 2,600 pounds. By comparison, Toyota’s gasoline-engine Tacoma, the best-selling small pickup in the U.S., gets 26 mpg on the highway and can carry 1,570 pounds in its bed. Diesel engines are generally at least 20 percent more fuel efficient than gasoline engines.

Key to Mahindra starting sales on schedule will be completing U.S. crash and safety tests by August, said Larry Daniel, senior vice president of sales and marketing at Global Vehicles U.S.A. Inc., Mahindra’s distributor.

“We’re cutting it close, but are confident the trucks will do well in the tests,” Daniel said in a June 12 interview.

Plans for U.S. models from China’s Chery, first announced in late 2004, failed because of disagreements with its U.S. distribution partner Visionary Vehicles LLC. Chrysler LLC also abandoned plans to sell Chery-made cars in the U.S. Geely, China’s biggest privately owned carmaker, hasn’t met its initial goal of selling cars in the U.S. by 2008 amid talks with Ford Motor Co. on buying its Volvo Car unit.

GM’s Small Car

Last month, GM agreed with a United Auto Workers request to build small cars at an unnamed U.S. assembly plant instead of importing them from overseas. Detroit-based GM’s initial plan was to sell a U.S. version of a car built by Chinese venture partner SAIC Motor Corp., according to the Associated Press.

The first highway-legal Chinese car in the U.S. may be the Coda sedan, a battery-powered model that Santa Monica, California-based Miles Electric Vehicles plans to retail in California in late 2010. The model will be supplied by China’s Hafei Motor Co.

Mahindra was set up in 1945 as a franchise to assemble Jeeps of Willys, according to its Web site. The automaker later had a partnership with Ford Motor Co. and now makes the Logan sedan with Renault SA in India.

India Engineering

While China’s auto market has drawn more attention, India’s experience in the industry is longer, broader and more sophisticated, said Noble. China is the world’s largest auto market in the first five months of the year, ahead of the U.S.

“Probably half the global vehicle structural analysis for automakers gets done overnight in India,” Noble said. “Indian engineers have been part of the fabric of the automotive industry for 15 years. China’s engineering capabilities are much more nascent.”

Honda, which entered the U.S. pickup market four years ago with the midsize Ridgeline model, said Mahindra should be viewed as a serious competitor.

“We discount any new entrants at our own peril,” John Mendel, Honda’s U.S. executive vice president, said in a June 11 interview. “I think they can get it right.”