With some fanfare, India’s Mahindra Group recently opened a new automotive manufacturing plant in the US to build off-highway vehicles for the North American market. It billed the Detroit facility as the first new original equipment maker in south-east Michigan in more than 25 years.
Mahindra’s investment highlighted the growing volume of Indian FDI into the US, totalling $12.1bn in 2016, according to US figures. Indian-owned autoparts supplier Sakthi Automotive Group has also announced its third expansion in Detroit.
New facility, new model
With the new facility, Mahindra Automotive North America (MANA) now boasts 37,000 square metres of warehousing, assembly, engineering and prototyping capacity, a 250-staff payroll, and a total investment of $230m.
“We have come up with a vehicle that creates a new sub-segment in this space,” says MANA chief executive Rick Haas. “We think the product offers a unique value proposition.” He will describe it only as a side-by-side all-terrain utility vehicle called Roxor. The Roxor will be designed and entirely built in Michigan – unlike Mahindra’s tractors, where only the final touches are added in the US.
Mahindra selected Michigan as a global engineering centre after an international search for a source of world-class engineering talent to support the global Mahindra company and facilitate its international expansion. It helped that Michigan is now a right-to-work state, meaning compulsory union membership is illegal.
The Indian company is also one of five finalists bidding to produce a new mail and delivery truck for the US Postal Service. If it wins, Mr Haas says MANA will create an additional 400 jobs and $600m investment by 2020.
MANA launched in 2013 with seven employees, expanding its activities step by step. It is taking a tactical and strategic approach to the US market, Mr Haas explains, and is aiming to establish a brand image with a vehicle that adapts a product already selling well in India, testing the US market without breaking the bank. If Mahindra does enter the passenger car segment, it will likely do so with its South Korean-made SsangYong brand, according to Mr Haas.
Indeed, while the new plant is good news for Michigan, it is not the game-changer that a new car assembly plant, requiring a minimum $1bn investment, might have been, says Kristin Dziczek, an expert with the Center for Automotive Research in Ann Arbor.
Meanwhile, Mr Haas is taking the disputed future of the North American Free Trade Agreement (Nafta) with Mexico and Canada in his stride. About 70% of MANA’s supply chain is in India, and Mr Haas plans to follow the lead of others in the auto industry if other parts of its supply chain are disrupted by a failed Nafta.
While Michigan provided Mahindra with about $850,000 in incentives to locate and expand its operations, Mr Haas says the personal relationship and helpful attitude of state officials are more important.
These words are music to the ears of Josh Hundt, head of business development for Michigan Economic Development Corporation. To attract investment from companies such as Mahindra, the state offers performance-based grants that enable businesses to earn funds by meeting certain milestones such as worker training or building a facility, he says. “They have to create jobs to earn the incentive. These grants offer a lot of flexibility for the project, but also protect the state budget,” adds Mr Hundt.
He says that Michigan is emerging from the economic doldrums of the last recession. The state is targeting FDI from India, Europe, China, Japan, South Korea and other parts of the world where it sees growth, citing Michigan’s skilled workforce, universities and strengths in the automobiles, aerospace, engineering, IT and cyber sectors. “Innovation and ideas can really flourish here,” says Mr Hundt.