U.S. Car Dealers Claim Indian Carmaker Mahindra Rolled Them
ATLANTA (CN) - Indian carmaker Mahindra duped hundreds of U.S. auto dealers and walked away with $9.5 million in cash and $100 million in trade secrets after the dealers funded and promoted Mahindra's SUV models for the U.S. market, Buick and Toyota dealers claim in Federal Court.
Dealers from five states sued Mahindra & Mahindra Ltd. and its U.S. counterpart, Mahindra USA, claiming the Indian manufacturer intentionally delayed U.S. certification of its vehicles so it could back away from the deal after getting dealership fees and trade secrets.
Lead plaintiff Coast Buick GMC Cadillac dba Holloway Buick, of New Hampshire, is joined by plaintiffs from Florida, California, New Jersey and Washington.
Mumbai-based Mahindra is a division of Indian conglomerate Mahindra Group of Companies. Mahindra was established in 1945 as a steel trading company, and entered the automotive market in 1947. Today it is a $14.4 billion corporation employing more than 144,000 people around the world.
Mahindra set its sights on the U.S. light truck market in 2004 and began to court U.S. dealers, according to the complaint.
"Given the large and increasing market share for foreign automobiles in the U.S., it comes as no surprise that Mahindra, India's largest manufacturer of SUVs and light trucks, 'loves America,'" the complaint states. "At a 'dealer show' held in Atlanta, Ga. on April 19, 2007, Arun Jaura, a senior Mahindra executive, proclaimed and repeatedly exclaimed, 'I love America!' Jaura's words were recorded that day and subsequently used to pitch and lull dealers across the U.S. into thinking that Mahindra truly intended to forge a partnership with U.S. dealers to sell a new line of Indian-made light trucks and SUVs in the U.S. Jaura's words were disseminated across this country by means of Mahindra's press releases, sales pitches, advertisements, and news articles. Jaura's words were repeated in face-to-face conversations with some 347 dealers that shook hands with Jaura and his Mahindra cronies - believing that Mahindra's words were earnest and meant something, believing that a handshake meant something, believing that their individual 'investments' were as secure as Mahindra's representatives advertised them to be.
"Now, approximately five years later, after having made significant financial investments, dealers across the U.S. are left with idle and vacant 'Mahindra' dealerships and empty showrooms, more than $100 million of funds expended, and a bag of false promises. On the other hand, Anand Mahindra and his cronies have pocketed more than $9.5 million, more than $100 million worth of dealer trade secrets to utilize for their future entrance into the U.S. market, and a strong market foundation gained at the expense of the dealers' 'free' promotion of Mahindra's brand name around the U.S."
The dealers claim Mahindra used them to lay the groundwork for its entrance to the U.S. market, under the guise of setting up distribution agreements.
Mahindra enlisted Global Vehicles, a Nevada corporation, to help it rally dealerships across the United States, according to the complaint.
Global Vehicles is not listed as a defendant.
"Although it had already established three tractor plants in the U.S., Mahindra had yet to break into the enormous American market for light trucks and SUVs," the complaint states. "In 2003, Mahindra was determined to penetrate this highly lucrative market. Ever careful, Mahindra did not want to enter what was uncharted territory by independently importing its vehicles and using its own field offices for distribution. Mahindra wanted an insider's perspective of the U.S. automobile industry, it wanted a ready-made network of dealers, and it wanted someone else to pay for it. Enter Global Vehicles and the dealers."
More than 300 dealers bought the right to sell Mahindra pickups and SUVs in their geographic areas. Mahindra used the dealership fees to modify, test and certify its vehicles in the United States, according to the complaint.
The dealers claim Mahindra assured them it would obtain U.S. certification for its vehicles by 2008, then intentionally delayed the application process.
After Mahindra and the U.S. dealers signed distribution agreements in September 2006, Mahindra's chief executive of international operations "handwrote a clause into the distribution agreement which purportedly allowed Mahindra to 'walk away' from the contract if homologation was not completed by August 2009," according to the complaint.
The dealers claim Mahindra promised that if it could not achieve U.S. certification, it would never enter the U.S. market. But in fact, Mahindra delayed submitting paperwork to the Environmental Protection Agency to miss a deadline and have a pretext to terminate the contract with Global Vehicles and the dealers, according to the complaint.
The dealers claim Mahindra obtained U.S. certification less than 2 weeks after it tried to terminate the distribution agreement.
Mahindra gained access to dealers' confidential information by claiming interest in buying Global Vehicles, according to the complaint.
The dealers claim Mahindra received "full and complete access" to sensitive information about the dealers' operations and paid Global Vehicles' vice president of sales to turn over the dealers' trade secrets.
They say Mahindra is planning to use their money, information and trade secrets to enter the U.S. market and create a new dealer network, without many of the dealers that funded and advertised its U.S. models.
The dealers say they relied on Mahindra's false representations and spent $65 million on dealership fees, more than $160 million building and upgrading showrooms to conform to Mahindra's standards, and more than $60 million promoting Mahindra's cars.
"This is a clear case of fraud," Gary Davidson, one of the Miami-based attorneys representing the dealers told Courthouse News.
"When you make claims that you are going to be selling cars in the United States and are looking for dealers to facilitate all that, and force dealers to spend hundreds of thousands of dollars and then you just walk away, that's a problem. ... Especially when weeks later you say, 'We've just been certified to sell the vehicles in the United States.' Mahindra's predicate for walking away from these dealers was simply false."
Davidson said Mahindra's actions hurt hundreds of dealers financially. He said other dealerships across the country may be joining the five plaintiffs in the lawsuit.
The dealers seek damages for fraud, negligent misrepresentation, conspiracy and unjust enrichment. They are represented by Davidson, with Diaz, Reus & Targ of Miami, and Jeffrey Horst, with Krevolin & Horst of Atlanta.