The long-standing chicken tax has been a major thorn to Indian auto manufacturer Mahindra & Mahindra, which is planning on introducing its compact diesel pickups later this year. The chicken tax, instituted in the 1960s, applies to all imported pickup trucks, regardless of brand. Although unsuccessful, the Mumbai-based manufacturer has lobbied to give its trucks an exemption from the tax, citing the trucks' low carbon footprint and environmental friendliness.

The chicken tax derives its name from a trade dispute that began in 1962 between the U.S. and Germany, when Germany began levying increased duties on U.S.-originated frozen poultry products. In response to the higher poultry taxes, a 25-percent duty on all imported, non-North American pickup trucks was imposed courtesy of then-President JFK beginning in 1964. The primary target at the time was Volkswagen, which was increasingly gaining traction within the U.S. auto market. The chicken tax continues today and is seen as an important protectionist measure for domestic automakers, which are shielded from potential truck competition arising from foreign pickup hotspots such as Thailand.

To skirt the hefty 25-percent duty, auto manufacturers including Honda, Nissan, and Toyota have built manufacturing facilities in North America to handle their truck production. With Mahindra expecting to sell in low volumes at less than 50,000 units a year, the maker is looking to utilize complete knockdown kits for its initial run of diesel trucks. A rare sight in North American auto manufacturing, CKDs are complete vehicles that will be assembled stateside from kits of parts shipped in crates. Despite the need to assemble the trucks once they reach U.S. soil, the use of CKDs will circumvent the 25-percent chicken tax. Assembly of the Mahindra diesel trucks will take place using another auto manufacturer's existing capacity.

According to Pawan Goenka, president of global auto sales for Mahindra, the additional import and assembly costs will be absorbed by the company and not factored into the trucks' retail prices. Goenka also states that local assembly of the trucks could commence after six months, assuming the costs are lined up.

The Mahindra diesel trucks will be distributed through Global Vehicles USA based out of Georgia. Pricing for the Mahindra offerings is expected to arrive in September.

Source: Automotive News (subscription required)