Mahindra's U.S. distributorship mess leads to lawsuits
Last August, I wrote a column that offered serious doubts about the chances ofvehicles ever making it to the U.S.
I questioned distributor Global Vehicles' handling of the would-belaunch, particularly the part in which dealers had to pay a franchise fee ranging from $100,000 to $300,000.
In response to the column, I was contacted by a dealer who said he was on the U.S. Mahindra dealer council. He said I was wrong in my skeptical portrayal of Global Vehicles, and Mahindra vehicles would begin retailing in December.
A few weeks ago, a trade publication ran a full-page ad headlined “An Open Letter to Mr. Anand Mahindra.”
The letter's premise is that the 347 dealers that paid Global Vehicles a franchise fee have united in an attempt to compel Anand Mahindra to work out his Indian company's dispute with Global for the good of all.
When I first read this open letter, I was skeptical about its origin, particularly since it contained no contact information for the so-called “Mahindra Dealer Action Committee.”
If I spent close to $20,000 on a full-page national ad to try to get someone to work something out, I would at least include an e-mail, phone number or mailing address.
In addition, the letter's sole demand to Anand Mahindra was to address the concerns of this “Mahindra Dealer Action Committee” by attending a meeting in Atlanta within a week.
If an individual or group truly wants to compel another party to come to the table, they would not tell them they have less than a week to fly half way around the world.
My suspicions regarding the letter were confirmed shortly thereafter when I found a small article that the goal of the “Mahindra Dealer Action Committee” was to help raise money for Global Vehicles.
The group seeks $3,000 in donations from each dealer to fund Global's legal fight against Mahindra.
Let me get this right. As a prospective Mahindra dealer, they want me to give an additional $3,000 to help pay legal bills, on top of the $200,000 I have already paid in?
What about the estimated $60 million already received from dealers' franchise sign-up fees?
Here are my thoughts on the open letter and the Mahindra Dealer Action Committee.
Global Vehicles' proverbial “ace in the hole”, the distributor rights for Mahindra vehicles in the U.S., got trumped when Mahindra acquired a majority stake in Korean auto manufacturer Ssangyong, providing a viable nameplate from which to launch its vehicles without Global.
Given that Mahindra no longer needs to negotiate with Global to distribute its vehicles in the U.S., Global is seriously exposed. Its primary asset in the negotiations (the distributorship rights for Mahindra vehicles) essentially becomes worthless.
This new and difficult reality for Global in and of itself is not the real driver behind the open letter. Instead, the letter attempts to muddy the waters when it comes to who will be found at fault for the loss of millions of dollars in dealer franchise fees.
The open letter came a few weeks after Global Vehicles was hit with a class-action lawsuit from dealers wanting their franchise-fee money back.
This Mahindra Dealer Action Committee seems to be the legal equivalent of a human shield.
It looks like Global is hiding behind a handful of dealers in order to give the appearance that the company is as much a victim in this matter as the dealers themselves.
This is not good news for those dealers who paid franchise sign-up fees.
The only thing left to do is to watch the class-action suit progress to see what happened to the estimated $60 million that dealers ponied up.
Phil Villegas is a principal at Dealer Transactional Services, LLC in Miami, Florida. He can be reached at PV@DTSAUTO.COM or 305-318-8515.
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