Man of the Year 2011: Pawan Goenka

If we look back at 2011 and ask who in the automotive sector or in government was the most influential for either the sector or his company, several names will spring to mind. In government, Pranab Mukherjee, finance minister, announced an electric and hybrid vehicle mission plan and got luxury carmakers in a tizzy by upping CKD rates. Then, one cannot ignore Gujarat chief minister, Narendra Modi, who brought Peugeot to his state as well as two other major big-ticket investments.

In the automotive sector per se, Maruti Suzuki chairman, R C Bhargava and team have succeeded, for now, in pacifying a restive labour force to bring things to normalcy at his company. In two-wheelers, a year after Pawan Munjal of the Hero Group signed an agreement with Honda to strike it alone, the numbers racked up do not show any sign of declining. A clear success story. Also in the two-wheeler space, 10 years after the Pulsar debuted, the bike continues to grow from strength to strength and managing director Rajiv Bajaj has every reason to be proud of this enduring brand.

But clearly, the man who has put his stamp most emphatically on his company, driving it into the global arena like no other is the soft-spoken engineer from Mahindra & Mahindra (M&M), Pawan Goenka, a General Motors veteran, who last March sealed the first overseas acquisition of the 61-year-old company. He also launched its first ‘global SUV’, the XUV500 and has laid the ground for new products in electric vehicles.

This true-blue engineer, a pure R&D person in his own words, Goenka returned to India and joined M&M in 1993 and led the team that built the Scorpio, one of India’s best-known SUV marquees. Since taking over as head of the automotive division, he has closely supervised every M&M product launched ever since. In 2010, he engineered the buyout of Reva, a niche Indian electric vehicle maker, with the aim of carving a niche in this technology of the future.

Five years ago, we recognised this man’s global visions and in 2006, we voted him as our ‘Man of the Year’ calling him the ‘architect of Mahindra & Mahindra’s new global vision’. For gradually translating that vision into actual results, Pawan Goenka is once again, Autocar Professional’s Man of the Year, this time for the year 2011.

I was given just an hour to meet Goenka, and also squeeze in a photo op. There’s so much to ask him and so I know I must prioritise. After all, Goenka wears multiple hats at M&M. I start by asking him what he would rank as his biggest achievements as a professional – acquiring SsangYong or launching the XUV500? “The XUV500 will have a significant influence on how M&M’s brand and the automotive business go forward, and so would the acquisition of SsangYong. But SsangYong is more complex, given that this was a first for the auto business," says Goenka, matter-of-factly. Clearly, the XUV500, launched in September, got off to a great start. Bookings crossed 8,000 in the first 10 days, and the company closed bookings temporarily and will re-start them next month. But Goenka, rooted as ever, says he will ramp up production but he’s not ready to “pop the champagne” yet.

In his 2006 interview with this magazine, he said, equally cautious: “Frankly, we did not know if we would succeed with the Scorpio. From my point of view, I had never designed a car all my life. I was a pure R&D person with a focus on the mechanical aspects of engine design. We were all one nervous bunch.” That experience was pivotal in Goenka’s transformation from an R&D boffin to a seasoned business executive, helping seal the Rs 2,100 crore SsangYong deal. SsangYong products are now headed to India. The Korean company, which re-entered China after its acquisition by M&M, aims to be the No.1 imported SUV brand in that market by 2013. Even as work towards that plan gets going, Russia – SsangYong’s largest market outside Korea – will see a good amount of action too. The Russia plan will help introduce Mahindra-branded vehicles in that market and expedite the company’s plan to derive a fifth of its business from export markets, a formidable target. Goenka has to focus equally on both brands as he is also the chairman at SsangYong.

SsangYong apart, there are other Mahindra auto businesses at an interesting stage. Goenka recently announced the pan-India launch of Mahindra-Navistar products. Weeks earlier, he drove the first production prototype of the Mahindra Reva NXR, a vehicle he hopes, “will redefine electric vehicle usage in India and bring in a new era of mobility solutions."

Automobiles are, without a doubt, Goenka’s passion. In this wide-ranging feature, he spoke to Autocar Professional about the M&M automotive business as well nurturing new talent for the automotive industry.

Our exclusive interview

2011 has been a landmark year for M&M. You acquired SsangYong and the XUV500 was launched. Which of these would you rate as more significant?

I do not think one should really compare both these key events. As far as launches go, we have had experience with launches going back to that of the Scorpio but, having said that, we could also count on our past experiences when we did launch the XUV500.

You have begun to ramp up production of the XUV500? What’s the status?

We were pleasantly surprised with the response we got at that price range of Rs 11-13 lakh, ex-showroom. It is a premium product and at this price, there are not too many products that have a huge demand in this price range.

I won’t say we were not prepared for it. There is a ramp-up process that any new product would follow. If anything, we are a little bit ahead of that ramp-up process. We have reached a figure of 80 vehicles per day which means 2,000 vehicles in a month in November. We will ramp up this month by another 500, and by another 500 in January 2012 to reach 3,000 units a month.

How did the launch of the XUV go and have you faced any challenges?

Frankly speaking, this has been one of our smoothest launches. The tremendous demand for it has made many people unhappy, especially for the all-wheel-drive version for which there is a one-third demand. We had prepared for five percent. The all-wheel drive waiting period has gone up to seven months. We have had no problems at all and have a team that is ready to go into action, should there be any. There are some one-off issues which the team is looking into and fixing diligently so that any problem that comes in is nipped in the bud. There have been some issues with the infotainment system, but that is being resolved.

Is that because of the high content of electronics which is around 30-40 percent of the XUV's cost?

Yes. That reminds me of the Scorpio days where there was zero ECU and seven sensors in the vehicle. This one has something like 60 or 70 sensors and 14 ECUs! In infotainment, we have had some challenges as the system has to link up with several kinds of sensors. Given the complexity of this electronic set-up, it is almost impossible to check out each and every possible sequence of use by the customer.

I visited the Chakan plant and saw your lightweighting attempts for the XUV such as the plastic fenders and fuel tank. Can you elaborate on M&M’s lightweighting efforts?

In this product, having the best-in-class weight was a very important issue because fuel efficiency has a strong dependence on the overall weight of the car. We wanted this vehicle to be the lightest in its class, and we have achieved that.

In this class, competitors of this size are at least 50kg heavier. We have used plastic and hi-tensile steel that have helped us to use a thinner gauge of steel and, therefore, a lighter body. I wouldn’t say that we have done something that hasn’t been done before by somebody. So far, what we have done is catch up in technology, and perhaps be ahead in some cases in implementation of the technology. What we would like to do is go beyond this stage of technology. There are a lot of things we are looking at by working with consultants and R&D centres to see what we can put in the shelf for the next product.

What about downsizing engines?

We were downsized to begin with. When we talk to someone like AVL, they tell us that Mahindra is already ahead of the game (in downsizing). We have a reasonably downsized 2.2-litre engine with 140bhp driving a 2000kg SUV. The power is high in an Indian context but still low in the global context. I don’t think we need to do any more downsizing for this size of vehicle.

In the Bolero, for example, we have a 2.5-litre engine and 75bhp power; we can downsize in engine displacement but we cannot go down in terms of power. In downsizing, we have to go lower on the weight. We would like to have smaller engines in the future in some of our lower-powered vehicles but there are cost issues.

The Bolero is the most efficient SUV today; it is a low-cost product and the challenge is to go below. Looking at engines that give 75-80bhp, we would have to invest to go lower and we won’t get more fuel efficiency.

What size of engines would you look at?

Without talking about Mahindra’s plans, today to deliver power of 75-80bhp, a powerplant of 1.5-1.6 litres is sufficient. The technology is there. The only problem is that you will have to start from scratch and make new investments. But our current engine, other than being a little heavier, gives all the value that the customer needs. We will think twice before we say that the Bolero’s engine should get smaller because we are already giving good fuel efficiency, power and performance to the customer. If we can give better value than that to the customer, then we will look at it (modifying the Bolero engine).

Have you started work towards this objective?

We have more engine projects than one can count on one’s fingers. We are looking at all kinds of options — upsizing, downsizing, lower capacity, higher capacity in terms of litres or horsepower per litre. We are doing all of that. So, there are many projects going on towards meeting weight reduction, emission norms, for different products we have or we will have in our portfolio. We are working closely with SsangYong to see how we can commonise our efforts in engine development.

Are these indigenous M&M efforts or M&M-SsangYong efforts? Or are you using outside help from someone like AVL?

When we look at the Scorpio engine, for example, we started developing the NEF engine way back when. We and AVL did 50:50 of the work but for the mHawk engine for the XUV, we did 90 percent. We probably will continue with that ratio. For any new engine project, 90 percent will be done by us and 10 percent by outside consultants. This is a good way to proceed. There’s no point in thinking that we’ll get that 10 percent in-house because it takes tremendous amount of expertise to do that. Even large companies use consultants.

There has been a nine-year gap between the Scorpio and the XUV but today product lifecycles are shrinking. How soon can we expect another model?

We had the Xylo in between, and it was a new platform. It was as big an effort as it was for the Scorpio or the XUV500. As far as shrinking product lifecycles, I don’t see it. Well, the Bolero came from the Armada and was launched a decade ago in 2000. Take the case of the Scorpio — it is warming up and we sell about 4,000 a month, more than we did last year. There’s a growth in sales if you compare last year’s numbers.

I don’t see the product lifecycle shortening. If the customer wants the old trusted workhorse, we will give it to him. If he wants a new one, we will give it to him. We will have more new products. We will not phase out a product because we think it has outlived its purpose. The new Bolero refresh has had very strong demand. We will keep selling the Bolero as long as the customer wants it.

The refreshed Bolero has had amazing sales. What would you attribute this to?

Even after we launched the Xylo, we continued to see demand for the Bolero. It is the highest-selling product which is not a hatchback, even though buyers generally come from smaller towns or rural areas. It has absolutely zero problems and users typically drive it for 50,000 to 60,000km a year.

With the LCCR engine we have in the refreshed Bolero, we get at least 16kpl. You would have to work very hard to get a vehicle offering you that kind of efficiency and carrying 10 persons. For value transport, you cannot beat the Bolero. With the refresh, we have given the vehicle more value. I don’t see the Bolero demand reaching a level which will make us phase it out. In fact, the refresh was done because of the growing demand.

Any plan of going down the affordability curve with a new model?

We are a premier SUV player and we don’t want to leave any segment unattended. Wherever we smell demand in the SUV segment, we will have a product. We have no specific product plan but all I can say now is that the Bolero is at the lowest end and the XUV500 is at the highest. We’ll cover the entire range of SUVs that is there to offer.

From a customer’s point of view, he looks for a product or vehicle that best meets his need. One doesn’t go out saying that I want to buy a saloon, or I want to buy an SUV. The number of vehicles selling below the Bolero price range is big, about 75 percent or so, and we do not cater there. We should look at all segments if we are to grow at the rate at which we are growing now. We have now created four strong products with the Scorpio, Bolero, Xylo and XUV500 and will continue to create more products above and below.

What are your plans for the Verito? Any new car models?

Passenger cars, as they are defined, are not our forte. As far as the Verito goes, you will see more value in the car but M&M will not launch new cars beyond the Verito.

We expect the refresh of the Verito to debut in the first quarter of FY 13 and second in the third quarter of FY 13, which is when we go below the four-metre length.

What about products from the SsangYong stable and how do you plan to introduce the brand in India?

We are about six months away from the launch of a SsangYong product. We have not announced whether it is the Korando C or Rexton. Having said that, we will launch it from our existing dealership network. At the moment, we are in the process of defining the brand, deciding how to promote it, and ensuring that customers see it as a higher value combined than both individual Mahindra and SsangYong brands.

Could there be a stage where a SsangYong product and a Mahindra one compete against each other?

We have to ensure that we position and price the product in such a manner that there will be no clash with Mahindra products. That’s the job of the marketing.

Does the re-entry of SsangYong into China give brand Mahindra an opportunity to enter that market?

Right now, SsangYong’s priority market is Russia. It is SsangYong’s largest market outside Korea. We have been interested in Russia for quite some time but haven’t managed to get the right business model. Right now with SangYong and the distributor we should be able to do that. As for China, we will wait for SsangYong to get properly established before Mahindra goes there. Maybe we will look at China two years from now when SsangYong is well established there.

In Russia, we start with DKD and then go to CKD. Russia is a very significant market for our range of products. SsangYong is doing almost 2,000 units a month in China. We see similar potential for Mahindra products. Russia is a complex market. One has to make the product for Russia and that needs some engineering and investments.

Do you plan to make Mahindra Research Valley (MRV) something like the technical centres of global OEMs in India?

It is one of the best places for doing automotive R&D in India. MRV has been benchmarked not against the best in India but the best in the world. So our engineers have the best facilities in terms of ambience and equipment. We now have the right scale for our engineers to do some world-class development as well as some fundamental research, where we have not spent too much time till now.

We are in the process of moving people to MRV. We are, however, struggling with the social infrastructure as we move people to MRV; the guys from Maharashtra face some problems but we are trying to create infrastructure to make them as comfortable as possible. This research centre will be a game-changer in terms of how our products are developed and we hope to launch winners in both the automotive and tractor sectors.

Is MRV working on electric vehicle technology?

Yes, we are but MRV is not a third party service provider. Mahindra Engineering Services will use some of the services of MRV on an arm’s length basis. MRV is primarily to leverage opportunity for better technology and products.

Having said that, the NXR is moving well. We will focus on lithium ion batteries as it meets customer expectations. Our challenge is to get the right price as the imported products are priced high, given the current exchange rate. This is where we would like the government to give EVs a helping hand, just like some governments do overseas.

What about the NXR and the very critical aspect of its range?

NXR is moving along well. I drove the first production prototype around three weeks ago. I was very happy the way the vehicle drives. It’s a far cry from the Reva currently in the market. Of course, it will be a little more expensive also. We are right now thinking of giving the customer options of three different powertrains — small, medium and large range. There will two kinds of batteries — lithium ion and lead acid. Our focus will be more on lithium ion. If your range is 10-15km, then you don’t need a large battery. Overall, the product is looking good. Our challenge is to get the right pricing as our focus is to make it affordable as well as commercially feasible for the company. The imported components constitute a big chunk right now and, given the current exchange rate, it is creating some concerns for us about pricing it right. We are looking at the government for some assistance as is the case with many markets globally. We hope to launch it in the first quarter of FY 2013. We do hope we will redefine electric vehicle usage in India and usher in a new era of mobility solutions.

Moving to Mahindra Navistar, things haven’t quite taken off the way you would have wanted it to.

Our ramp up has been slower than what we had anticipated. We were entering a segment with very strong customer loyalties. Therefore, we launched a small volume and have got customer feedback. We are also slowly adding to our dealer network.

Now we are ready to go the whole hog. We have released our first commercial and last month (October), we sold 300 vehicles, our highest. What we have been doing is testing and now we are actually launching now, in a sense. Today, the driver of the truck calls the shots and we want to make the Mahindra-Navistar product their choice. Also, turnaround time is key and one gets one extra trip in a monthly freight movement with our product. But the halts at toll nakas have to be kept in mind.

Yes, we have had problems and that has lengthened our test marketing. However, we have also corrected problems that cropped up in the trucks we sold. All is now done, and while admitting some issues were there, we have de-bugged the product.

One major challenge that the automotive sector faces is getting skilled human resources. Does that explain M&M’s, and your personal, interest in Baja?

I wouldn’t say Baja is a training ground for future engineers but Baja is a movement that aims to create awareness in college campuses, about excitement for working in the auto industry. This year, for example, there will be more than 100 vehicle projects and each vehicle has 25 students working on it. About 2,500 students will be actually working hands-on to design, build and run them. Each person will have, say, 10 friends who will look at him and say, “Hey, he is really having fun. I wish I was there.” So we are almost converting potentially 25,000 students to becoming auto-passionate. Baja is creating the skill but, more importantly creating the awareness and passion for the auto industry. If we can attract more people into the industry, we can reduce the skilled manpower shortage we face. It’s not something that will get sorted out in one year.

I am very happy the way Baja has grown over the last four years. Students are falling over each other to participate. We still have some way to go to meet the level of vehicles in Baja events that other countries have but if I look at the knowledge these students have, it’s impressive. These students are, no doubt, raw in comparison to their overseas counterparts. They work hard and many learn as they make the vehicle. They bring a clear advantage over those who don’t get this exposure.

Even if you leave Baja aside, the quality of GETs, PGTs, 350-400 of who we get in at Mahindra every year is very good. If only they worked with us throughout their careers, we wouldn’t have had any skilled manpower problem.

2012 will be the year of General Sales Tax. How does it impact the auto sector?

It’s a major challenge, making the industry more competitive. Commodity and fuel prices keep going up and, therefore, to be efficient is important. The government has to ensure that we do not have an unnecessary high tax burden.

We hope that states that have not supported GST will see the benefits. We are all looking forward to GST.

The dates keep getting moved. I hope better sense will prevail and GST will happen in FY 2013 — by October 1, as April 1 looks difficult now. It’s very important for the industry.

Global slowdown and a weakening rupee. How has that affected Mahindra?

The year has been not quite up to the mark for the auto sector as a whole. Events such as the strike at Maruti have impacted overall sales. If you take Maruti out from the equation, there has been a growth of seven to eight percent. The exchange rate has made it worse for companies that have high import content.

For M&M, it has not hurt except in the case of the Verito where we import 50 percent of the kit. Given the exchange rate of the euro at Rs 69-70, there is pressure on us. On the export side, we are benefiting. However, Rs 52 is not a good rate to have, good for now and short-term as we are a net exporter but I’d like it to stabilise between Rs 44 and 48 to the US dollar. But I am not an expert in this matter, so my opinion doesn’t count!

Did it affect your profitability in the recent results?

Not really. One has to factor in the impact of rising commodity prices. Even if we pass on the increase, we lose between 1 to 1.5 percent in profitability. There is too much focus on OPM percentage which does not determine the return on investment.

If one can grow the topline very rapidly and not grow the bottom-line at the same speed, nothing is wrong as long as we focus on ROC. Operating margins will not remain at the levels that we have got used to. The last two years have been good because we were coming out of the slowdown. What we are getting now is more reasonable. Even this, we should look it through a different lens.

We are now a global industry. India is a global market and we cannot be an outlier in terms of OPM percentage but must look at things holistically. I am not disappointed with our results. We have had good growth and launched products, and have, overall, done well. We should look at the growth we are getting and the profit in absolute terms, and the return we are getting on our investment.

Mahindra is now firmly on its path to be a global player but aren’t your global plans incomplete without entering the US market? Will 2012 be the year when brand Mahindra enters the US SUV market?

We have not yet come out of our legal arbitration, so we cannot speak about our US plans till it is settled.

We saw some interesting developments in M&M during 2011. Will 2012 be as interesting?

This year we have had some major launches — the Genio pickup, the Bolero refresh, the XUV and a Mahindra Navistar truck. Next year you will see the launch of the NXR, a SsangYong product and something we cannot talk about. In 2012-13 we have a full agenda. We are not likely to have a brand-new platform. We are doing a lot of refreshes, and variants on various platforms.