Live score

  • Powered By
3-MIN READ

Mahindra & Mahindra's American speed bump

Mahindra & Mahindra's American speed bump

The Indian auto biggie wanted to launch its trucks in the USA. But now it is embroiled in a legal spat in the country.

On January 1, 1959, the government of Fulgencio Batista fell and Fidel Castro seized power in Cuba. Rumours started doing the rounds that all children would be taken against their parents’ wishes and sent to military schools or to Soviet labour camps. America’s Central Intelligence Agency launched Operation Pedro Pan. From December 1960 to October 1962, more than 14,000 Cuban children arrived alone in the United States and were relocated in 30 states.

John Perez was one of the Pedro Pan boys.

He was 12 when he came to the US. From then on he has been trying to pursue the American Dream, trying his hand at various entrepreneurial ventures. In 2006 he started Global vehicles, a car distribution company, to help Indian auto major Mahindra & Mahindra (M&M) launch its pick-up truck in the US. But more recently, he has been giving Anand Mahindra, M&M’s chairman and managing director, sleepless nights.

Since 2010, Perez and M&M have been locked in a legal tussle that has virtually derailed the $15.4 billion (by revenue) company’s plans to launch a pick-up truck in the USA. Perez has fought one arbitration case. He has been a co-accused with M&M in a legal suit. And he himself has been sued twice—both legal suits mention M&M as one of the reasons why Perez has been dragged to the courts.

The issue

The entire dispute can be summarised thus: M&M wanted to launch a pick-up truck based on the Scorpio platform in the US. It chose Global Vehicles to distribute its trucks; John Perez was the head of Global Vehicles at the time (the company ceased operations in 2011). While M&M was getting the necessary certifications, Perez signed on dealers, 347 of them, and collected signing fees. But the trucks never came and when the dealers wanted their money back they found Global Vehicles didn’t have it.

Perez says his entire operation was predicated on the launch of the trucks and the money was spent on getting the network ready for that. Because M&M did not launch, it suckered him and the dealers. M&M says the launch was subject to certification (called homologation) from the US authorities, which did not come. The dealers want someone—either Perez or M&M—to pay.

Anand Mahindra would really like all of this to go away. For years he has wanted to make M&M’s automotive products a success in the US. In an interview to Business Times on January 4, 2010, he said: “We want to build a globally renowned brand in our niche area of sport and utility vehicles. When you have that mission, you have to be global, and you just have to be in the US.”

BATTLE STATIONS

On June 4 this year, the latest round in this battle began. Five automobile dealers in the US filed a suit against M&M in the district court of Georgia. They accuse the company of fraud and conspiracy, and claim damages of $60 million. What makes it significant is that Pawan Goenka, president of M&M’s automotive & farm equipment sector, will be testifying under oath in a US court in the near future.

M&M is clear in its defence and cites an earlier judgement of a Missouri court where it was a co-accused. “While the ruling speaks for itself, the court noted that Mahindra had no contractual relationship with any of Global Vehicles’ dealers. Also, Global Vehicles has been sued by a number of other dealers because those dealers correctly recognised that Global Vehicles was the party responsible for taking the money and making false promises,” says an email response from the company.

M&M says the dealers’ financial relationship was with Global Vehicles and Perez had no business spending their money before he gave them the product. “Under Generally Accepted Accounting Principles, Global Vehicles should have treated these amounts as deposits and been prepared to refund them to the dealers in the event we were unable to certify vehicles for sale in the United States,” says the email.

Next Story
Loading