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Rediff.com  » Business » Rivals eye Mahindra's American truck partner

Rivals eye Mahindra's American truck partner

June 18, 2012 08:38 IST

As European auto heavyweights Volkswagen AG and Fiat Industrial SpA are reportedly planning to buy into the loss-making US truck maker Navistar International, its Indian partner, Mahindra & Mahindra (M&M), remains on the edge.

Volkswagen, which has two heavy-duty truck brands, Scania and MAN, is eyeing an equity stake in Navistar to gain a stronger foothold in the US commercial vehicle market, according to international media reports.

Similarly, the Italy-based Fiat, which owns the commercial vehicle brand Iveco, has also reportedly expressed interest in Navistar, as such a move would allow it to command a better presence in the US market. A sell-out of Navistar may impact the business plans of India's utility vehicle market leader, M&M, which forayed into the heavy trucks segment after joining hands with Navistar in 2005.

Though M&M owns mini-trucks ranging from 0.5 tonne to 1.5 tonne under its own brand along with commercial passenger vehicles, the company sells larger products under the joint brand of Mahindra Navistar.

The Indo-US collaboration has been retailing 25-49-tonne trucks, including tippers, under the 51:49 joint venture company Mahindra Navistar Automotive Ltd (MNAL) since 2010. The two companies have worked on developing new products and engines for Indian conditions, with investments worth Rs 750 crore (Rs 7.5 billion) till date. A further Rs 250 crore (Rs 2.5 billion) is lined up for expansion purposes.

When asked if M&M had spoken to the management of Navistar, Pawan Goenka, president (automotive and far equipment sectors), M&M, said, "We are not aware of it." Speaking on the sidelines of a recent human resources summit here, he said, "We have not discussed this."

A sell-out by the promoters of Navistar at this stage will hamper M&M's plans for the heavy commercial vehicle market. Several new products and the expansion of the Chakan truck-making unit near Pune are lined up, with added investment.

In addition to trucks, long-distance luxury buses, small commercial vehicles and expansion of export markets are also planned by the two companies. The joint venture company, yet to generate profits, also makes the Maxxforce engine for India.

Both Scania and MAN, owned by Volkswagen, are present in India albeit at a small scale. Fiat does not have any commercial vehicle exposure in India, and sells its trucks mainly in Europe and South America.

Navistar reported net sales of $13.95 billion last financial year against $12.14 billion in the year before. Net income grew to $1.7 billion in the period against $223 million in the year-ago period.

Margins came under pressure after it was hit by a hefty charge for warranty costs related to engines built in 2010 and 2011. Billionaire investor Carl Icahn recently raised his stake in Navistar to nearly 12 per cent even as the struggling truck maker posted a $172-million second-quarter loss last week, cutting its full-year estimate on weaker margin earnings.

Last month, the joint venture rolled out its 5,000th truck from the Chakan plant in Maharashtra. It has lined up six launches for the later part of this year and next year.

Swaraj Baggonkar in Mumbai
Source: