M&M to build plant in Brazil?

Indian automaker Mahindra & Mahindra (M&M) is planning to build a new plant in Brazil.

The executive director and president of M&M's auto business, Pawan Goenka, is reported as saying the plan has been motivated by the benefits derived from avoiding import tariffs.

Currently, M&M offers two vehicles in Brazil, the Scorpio sport utility vehicle (SUV) and pick-up. Both are assembled by local partner Bramont.

According to Goenka: "Brazil has put in some kind of taxation on companies not doing enough local R&D and value addition. In some senses, it is a tax barrier and makes our products uncompetitive. Those who have manufacturing plants with a fair level of vertical integration are okay, but those who do not have a plant in Brazil or have a very small level of localisation are affected. Brazil is a good market and something we are seriously looking at. It is not in the immediate plans yet, so there is no decision on it right now."

The executive also said the current arrangement with Manaus does not provide enough localisation to avoid the tariffs, and that the location in the middle of the Amazon jungle makes it difficult.

In 2013, M&M's current arrangement achieved a production level in Brazil of 1,902 Scorpios.This number is forecast to dip to 881 in 2014, far less than 1% of the country's 3.46 million units of production in 2013. Only 436 units were sold in Brazil, however.

Sales of the Scorpio across South America reached 2,423 units in 2013, also indicating that the brand may have potential to export some of the Brazilian production to the country's trade partners in the region.

On the face of it, the numbers do not seem to justify local production, but Pawan Goenka may be keeping something up his sleeve.